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TCJA Personal and Professional Implications Seminar-04-18
1. The Tax Cuts and Jobs Act:
Personal and Professional
Implications for Rutgers
Faculty and Staff
Barbara OโNeill, Ph.D., CFPยฎ, Rutgers Cooperative Extension
boneill@njaes.rutgers.edu
3. Background:
Major Taxes Paid in the U.S.
๏ Taxes on Purchases
โ Sales tax and excise tax (e.g., gas, cigarettes)
๏ Taxes on Property
โ Real estate property tax
โ Personal property tax
๏ Taxes on Wealth
โ Federal estate tax
โ State inheritance tax
๏ Taxes on Earnings
โ Income tax and Social Security tax
4. Background: The Progressive
Nature of Federal Income Tax
โข Progressive tax โ Takes a larger percentage
of income from high-income taxpayers than
low-income taxpayers.
โ Federal income tax
โข Regressive tax โ Takes a decreasing
percentage of income as income increases.
โ State sales tax
5. Background: Marginal Tax Rate Is
Applied to the Last Dollar Earned
โข Marginal Tax Bracket (MTB) โ Income-range
segments that are taxed at increasing rates as
income goes up
โข Marginal Tax Rate โ The tax rate applied to your
last dollar of earnings
โข Established by Congress and change periodically
โข Major overhaul of federal income tax rates in TCJA
6. Background: Tax Credit Versus
Tax Deduction
$100 Tax Credit
Reduces Your Taxes by $100
$100 Tax Deduction
Amount Your Taxes are Reduced
is Based on Your Tax Bracket
Example: $5,000 x .22% mtb = $1,100 of tax savings; $3,900 net cost
7. Background:
Types of Deductions
Deduction = An amount subtracted from gross income to
reduce the amount of income subject to tax.
โข Standard Deduction- Amount established each year by tax
code; no need to itemize deductions; amount is based on a
taxpayer's filing status, age, etc; no receipts needed
โข Itemized Deduction- Specific amounts spent on certain
goods and services throughout the year; allowed deductions
are outlined by the IRS and include such expenditures as
mortgage interest and charitable donations
www.investopedia.com/terms/i/itemizeddeduction.asp#ixzz1zxopAxpP
www.money-zine.com/Calculators/Mortgage-Calculators/Mortgage-Tax-
Deduction-Calculator/ (Mortgage tax deduction calculator)
7
8. Background: Itemizing Required
for Charitable Gift Benefits
โข If you claim the standard deduction on your tax
return, charitable gifts will not provide a tax benefit
โ Psychic benefits of giving to charity are another issue
โข You must itemize expenses on Schedule A to deduct
charitable donations.
9. Background: Refundable and
Non-Refundable Tax Credits
โข Refundable: When tax credits are greater than the
amount of tax you owe, the IRS sends you a tax
refund for the difference
โ Example: Earned Income Tax Credit (EITC)
โข Non-Refundable: Credit canโt be used to increase
your tax refund or to create a tax refund when you
wouldnโt have already had one. In other words, your
savings cannot exceed the amount of tax you owe.
โ Example: Child and Dependent Care Expenses Credit
10. Background: Tax-Rate
Schedules and Tax Tables
โข Tax-Rate Schedules โ Used by filers with a taxable
income of $100,000 or more; requires a mathematical
computation to determine tax liability
โข Tax Tables โ Used to look up oneโs tax liability
according to tax filing status and income range
13. Background: Impact of W-4
Form Decisions on Net Pay
0 allowances = max taxes deducted* =
Smaller take home pay =
Larger tax refund
+ allowances = less taxes deducted =
Larger take home pay =
Smaller tax refund
NOTE: Taxpayers can add extra withholding beyond โ0โ allowances; e.g., +$50 more
14. General Tax Planning
Strategies to Minimize Taxes
If you expect Then you should Because
The same or a
lower tax rate next
year
Accelerate
deductions into this
year
Greater benefit to
higher rate
The same tax rate
next year
Delay income into
next year
Delay paying taxes
A higher tax rate
next year
Delay deductions Greater benefit
Accelerate income Taxed at lower rate
15. Background:
Alternative Minimum Tax (AMT)
โ Paid by taxpayers with high amounts of certain
deductions and various types of income
โ Designed to ensure that those who receive tax
breaks also pay their fair share of taxes
โ Has increasingly been affecting less affluent
taxpayers, especially in high-tax states (e.g., NJ)
โ A high proportion of long-term capital gains to
ordinary income can trigger the AMT
16. Background: Tax Avoidance
and Tax Evasion
Tax Avoidance (Minimization)
โ Legitimate methods to reduce your tax obligation
to your fair share but no more
(e.g., deductions, credits, tax-deferred/tax-free investing)
Tax Evasion
โ Illegally not paying taxes you owe, such as not
reporting all income or overstating deductions
18. Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act was passed by the U.S. Senate and
House of Representatives in late December 2017 and signed by
President Trump on December 22, 2017.
This law will impact individual taxpayers and businesses on a
scale that has not been seen in over 30 years.
20. Tax Cuts and Jobs Act #1
โข Eight year period of lower individual tax rates from
2018 through 2025 with seven temporary tax rate
brackets ranging from 10% to 37%
โข Elimination of personal exemptions (from 2018-2025)
โข Nearly double the standard deduction ($12,000 for
singles and $24,000 for married couples filing jointly
in 2018)
โ Fewer people will benefit from itemized deductions
22. Tax Cuts and Jobs Act #2
โข $10,000 cap for state and local tax (SALT)
deductions (e.g., state income tax and municipal
property tax) for taxpayers who itemize; NOT
indexed for inflation
โข Repeal of all miscellaneous deductions that were
previously subject to 2% of adjusted gross income
(AGI) floor (e.g., union dues, uniform expenses,
unreimbursed business expenses, tax prep fees)
โข Enhanced child tax credit of $2,000 per qualifying
child; $1,400 of the credit is refundable
23. Tax Cuts and Jobs Act #3
โข Lower medical expenses deduction threshold of
7.5% of AGI for tax years 2017 and 2018
โ NJ income tax floor is 2% of AGI- Save receipts!!
โข Retains the alternative minimum tax for individuals
with higher AMT exemption amounts from 2018
through 2025; fewer people will be affected by AMT
โข 529 college savings plan distributions can be used
(within the annual limit of $10,000 per student) for
private elementary and secondary school expenses
and homeschooling expenses
24. Tax Cuts and Jobs Act #4
โข Interest on home equity loans no longer deductible
from 2018-2025; no grandfathering for existing home
equity loans
โข Tax-deductible interest is capped on mortgage debt
(called acquisition indebtedness) up to $750,000 on
new mortgages
โ For mortgages taken out before December 15, 2017, the
previous $1 million debt limit for mortgage interest remains
โข Chained CPI (consumer price index) will be used for
future indexing, resulting in lower inflation
adjustments than the previous CPI
25. Tax Cuts and Jobs Act #5
โข The moving expense deduction is suspended from
2018 through 2025 with the exception of the
moving and storage expenses of service members
โข The estate tax exclusion was raised to $11.2 million
for individuals and $22.4 million for married couples
(with proper planning to double the individual
exemption; i.e., portability) from 2018 through 2025
โข Student loan interest deduction up to $2,500
remains unchanged (above-the-line deduction even
if you donโt itemize); ditto for education tax credits
26. Tax Cuts and Jobs Act #6
โข The Affordable Care Act shared responsibility
payment remains in effect for 2017 and 2018 and is
$0 beginning in 2019
โข Alimony is no longer deductible by spouses who pay
or taxable to recipient spouses for divorce decrees
signed after December 31, 2018
โข Uninsured casualty losses can only be deducted if
they are attributable to a federally declared disaster
and exceed 10% of AGI
โข TCJA slams NJ harder than any other state:
http://www.nj.com/politics/index.ssf/2018/03/trump_tax_plan_hits_nj_hard
er_than_any_other_state.html
27. What to Do About Your Income
Tax Withholding?
โข Check your expected tax impact as a result of the
TCJA with an online calculator:
โ http://tpc-tax-calculator.urban.org/
โ http://taxplancalculator.com/calc
โ https://taxfoundation.org/2018-tax-reform-
calculator/
โข Determine the change in your tax withholding starting
with 1/26/18 paycheck; multiply amount by 25
โข Compare the two numbers; adjust W-4 form as
needed
28. What to Do About the SALT Cap?
โข Consider downsizing to a smaller home in your
current town to have lower property taxes
โข Consider moving to another town that has lower
property taxes (Trenton, NJ to Morrisville, PA)
โข Suck it up and pay more federal income tax
29. What to Do About the Loss of
Business Expense Deductions?
โข Build unreimbursed (and now non-deductible) expenses into
program registration fees (if related to a program)
โข Build expenses (e.g., travel) into grants or Foundation gifts to
deliver programs or conduct research
โข Build up sundry account balance (honoraria, speaking fees,
etc.) to pay now non-deductible expenses
โข Say โnoโ to actions that require unreimbursed, non-deductible
expenses (e.g., hold a teleconference instead of driving to NB)
โข Establish a consulting business (consistent with RCE policies)
to deduct expenses against (e.g., professional dues)
โข Suck it up and pay now non-deductible employee business
expenses fully out-of-pocket (i.e., pay more income tax)
30. What to Do About the Loss of
Charitable Contribution Deduction?
โข โMake Yourself Wholeโ Strategy- Give what you used
to give out-of-pocket (i.e., after taking tax deductions)-
now that you can no longer itemize
โข Donate appreciated assets instead of cash (to avoid
capital gains taxes)
โข If over 70 ยฝ, donate from an IRA (so RMD does not
count as income to the donor)
โข โBunchโ donation funds into target years, using a
donor-advised fund to distribute funds to charities
33. Federal Tax Rates
Rutgers Cooperative Extension Tax Information web
page: http://njaes.rutgers.edu/money/taxinfo/
34. Nerdโs Eye View Blog Post
For a through description and analysis of the Tax Cuts and
Jobs Act, review the blog post Individual Tax Planning Under
the Tax Cuts and Jobs Act written by Michael Kitces.
35. TCJA Tax Law Calculators
โข Tax Bill Calculator: Will Your Taxes Go Up or Down? (The
New York Times):
https://www.nytimes.com/interactive/2017/12/17/upshot/tax-
calculator.html?em_pos=small&emc=edit_up_20171218&nl=u
pshot&nl_art=0&nlid=77794120&ref=headline&te=1
โข Tax Calculator: What Tax Reform Means For You (Fox
Business):
http://www.foxbusiness.com/politics/2017/12/19/tax-
calculator-what-tax-reform-means-for.html
โข Be sure to check the underlying assumptions!
โข You will get a rough estimate-not an exact number
36. TCJA Tax Law Resources
โข Congress Passes Sweeping New Tax Legislation (Iowa State University):
https://www.calt.iastate.edu/blogpost/congress-passes-sweeping-new-tax-
legislation
โข Details of the Conference Report for the Tax Cuts and Jobs Act (Tax
Foundation): https://taxfoundation.org/conference-report-tax-cuts-and-jobs-
act/
โข Preliminary Details and Analysis of the Tax Cuts and Jobs Act (Tax
Foundation): https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-
analysis/
โข Tax Cuts and Jobs Act Summary (CCH Incorporated and Wolters Kluwer):
https://goo.gl/CtJMAq
โข The Final GOP Tax Bill is Complete. Hereโs What Is In It (The Washington
Post): https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-
gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.b82bad4b0124