What Does the New Federal Tax Law Mean to You?
In mid-December the U.S. House and Senate passed a passed a tax bill that did several things to affect your taxes included making several temporary tax breaks permanent.
Steve Cornelison, a partner and tax attorney at Stewart, Melvin & Frost, explains what the new tax law means to you.
Question: Steve, what are some of the important tax breaks that were made permanent?
Steve: There are several that will affect individuals and families. The law made permanent rules allowing for a tax-free distribution from an IRA which is paid to a charity. This is limited to $100,000 per year and is available only to taxpayers who are age 70 ½ or older. It also counts toward the minimum required distribution.
The tax credit for college tuition, fees and course materials was set to expire at the end of 2017 but now it’s permanent. The up to $2,500 credit per year is available to individuals with adjusted gross income of no more than $80,000 and joint filers with income of no more than $160,000.
The state and local tax deduction lets you claim either an itemized deduction for the state income taxes you paid during the year or the state sales taxes you paid. And the $1,000 child care tax credit remains. The credit will continue to begin phasing out for singles with incomes of $75,000 and married couples with incomes starting at $110,000.
The enhanced earned income tax credit was also made permanent. The exclusion for cancellation of indebtedness income on a principal residence is extended through 2016, which will allow people still renegotiating their mortgage or going through foreclosure to exclude up to $2 million from income.
Question: What are some other tax breaks for families included in the new law?
Steve: There is a change to 529 college saving plans which added computers to the list of expenses which can be paid for from a 529 account. Previously you had to show the school required the computer in order to justify paying this as an expense.
Parents of disabled children can use Achieving Better Life Experiences accounts, called ABLE accounts, more easily. The new tax law eliminates the requirement that a qualified ABLE account be established only in the state of the account’s designated beneficiary (the disabled person). Since Georgia has not yet implemented its ABLE account program under the ABLE law, this would allow people living in Georgia to establish an account in another state which has implemented its program. I believe Georgia’s legislature may be considering these accounts again this year. This also means that parents will now have the flexibility to find states with ABLE account programs with the lowest fees, best investment choices and most appropriate account limits to pay for expenses of caring for their disabled children.
In addition, homeowners will be able to deduct mortgage insurance premiums as interest on their primary residence. This deduction isn’t available to filers with incomes over $110,000.
Question: Is there anything in the bill that small business owners or the self-employed should know about?
Steve: Businesses will receive a $2,400 work opportunity tax credit if they hire the long-term unemployed. Long-term unemployed are now a targeted group for this credit. Employers will receive the credit if they hire someone who has been unemployed for 27 weeks or more.
The deduction for depreciable assets of up to $500,000 by small businesses in the year of purchase, the Section 179 deduction, has been made permanent and the amounts will be indexed for inflation for future years. The Research and Development tax credit is now permanent.