Education Planning. There were proposals to repeal the adoption credit and the exclusion for adoption assistance, as well as the exclusion for dependent care assistance, but they were not included in the final law. Such fundamental changes to the tax code have substantial effects on the federal budget and economy. The 529 plan can help ease this burden, with no income limitations and extremely favorable contribution limits. Accordingly, withdrawals for nonmedical purposes from these accounts starting at age 65 remain penalty free. The 2017 Tax Cuts and Jobs Act came into effect on the 1st of January, 2018. The tax treatment of alimony changes dramatically for divorce and separation decrees or agreements entered into or modified after 2018. The modest tax credit for a person age 65 or older or permanently disabled had been slated for repeal, but the final law retained it. Another change in the TCJA, starting in 2018, is the ability of participants who took plan loans and then terminated employment to contribute the outstanding borrowed amount to the plan of a new employer and avoid a deemed distribution. Investments are made through a qualified opportunity fund, defined as one in which at least 90% of the assets are qualified zone property. The 2017 Tax Cuts and Jobs Act came into effect on the 1st of January, 2018.
document.write('<'+'div id="placement_289809_'+plc289809+'">'); hbspt.cta._relativeUrls=true;hbspt.cta.load(295024, 'b31a942d-4c98-439c-a7d5-c4290ca8c224', {}); Topics: There is no guarantee that an education-funding goal will be met. Some provisions of the TCJA that affect individual taxpayers can also affect business taxes. Traditionally, qualified expenses were those incurred at an eligible postsecondary school. From a tax perspective, there is still some tax relief available.
Under the tax act, the state tax deduction for contributions may provide incentive for your clients to put money into a 529 account and then take it right back out. These changes require financial planners to reorient their thinking about the advice they offer to individual clients concerning life-stage matters.
This new cap may influence a decision on whether or where a taxpayer chooses to relocate. The computation of the tax on unearned income of a child, however, has been changed. Please share your thoughts with us below! var plc456219 = window.plc456219 || 0; The TCJA did not directly change the rules for tax-advantaged retirement savings plans, such as 401(k)s, 403(b)s, and IRAs.
The positive changes introduced by the new tax act provide a great opportunity to revisit your education savings strategies with clients and help them use 529 plans to achieve their education goals.
As this advice is being offered, keep in mind that there are some unanswered questions that await IRS guidance or additional legislative clarification. Previously, if parents or grandparents wanted to use tax-advantaged savings plans to pay for primary and secondary school, they had to use a Coverdell ESA. The same $2,500 annual limit applies; the modified adjusted gross income limits on eligibility for the deduction continue to be adjusted annually for inflation.
This material is for educational purposes only and is not intended to provide specific advice.Commonwealth Financial Network®, Member FINRA/SIPC. ___ Determine the advisability of timing a marriage or divorce in light of TCJA changes. Most of the changes took effect on January 1, 2018. Here, I will discuss some of these changes and why you may want to reposition 529s as education rather than college savings accounts. The annual contribution amount (capped at the annual gift tax exclusion) has been temporarily increased by the lesser of the federal poverty line for a one-person household or the individual’s compensation for the taxable year. While all state and local taxes are deductible in 2017, starting in 2018 there will be a $10,000 cap on the itemized deduction for property taxes and state and local income or sales taxes.
The act also provides some much-needed rollover flexibility to 529 ABLE accounts.
WE USE COOKIES TO HELP GIVE YOU THE BEST EXPERIENCE ON OUR SITE. Please review our Terms of Use. A proposal to make interest on municipal bonds taxable was not included in the final law. Under the TCJA, itemized deductions cannot be claimed for theft losses or for casualty losses other than those incurred in a federally declared disaster area. The amount rolled over counts toward the annual contribution limit, which is the same as the annual gift tax exclusion ($15,000 in 2018). The rising cost of higher education and the burden of student loans have made saving for education costs more important than ever. For 2018, the deduction is the greater of $1,050 or earned income plus $350 (but not more than $12,000). There is also a new $500 nonrefundable child tax credit for a qualifying dependent who is not a qualifying child (e.g., a child living with and supported by parents but too old to be a qualifying child). The Tax Cuts and Jobs Act has changed the 529 plan—helping to make these accounts more attractive when it comes to qualified expenses. ___ Review the options for saving and paying for education in light of TCJA changes.
The Disaster Recovery Act of 2017 provided special rules for victims of Hurricanes Harvey, Irma, and Maria. Individuals who suffer such disaster losses can continue to deduct them, but from a planning perspective, it is essential to review insurance policies (including flood insurance) to be sure of adequate coverage. The standard deduction is a set amount of income, based on your filing status, that you can claim as tax-free for living expenses, thus deducting it from your tax liability. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. The following states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The TCJA provides some relief for a major disaster occurring after December 31, 2015 (“2016 disasters”), as well as for disasters occurring before January 1, 2018. AdButler.ads.push({handler: function(opt){ AdButler.register(165519, 456219, [300,600], 'placement_456219_'+opt.place, opt); }, opt: { place: plc456219++, keywords: abkw, domain: 'servedbyadbutler.com', click:'CLICK_MACRO_PLACEHOLDER' }}); The CPA Journal is a publication of the New York State Society of CPAs, and is internationally recognized as an outstanding, technical-refereed publication for accounting practitioners, educators, and other financial professionals all over the globe. President Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law on December 22, 2017. Qualified disability expenses. The Tax Cuts and Jobs Act has changed the 529 plan—helping to make these accounts more attractive when it comes to qualified expenses. America continues to be a highly mobile society, and this likely will not change under the new tax law. document.write('<'+'div id="placement_282686_'+plc282686+'">'); This side-by-side comparison can help businesses understand the changes and plan accordingly.
There is a new opportunity for tax-free or tax-deferred capital gains on certain investments in opportunity zones. No changes were made to the above-the-line deduction for student loan interest. The limitation applies on a per-student basis, so if a student is the beneficiary of multiple 529 accounts, only a total of $10,000 can be withdrawn tax free in one year from one or more of these accounts. Thus, if an individual converts some or all of a tax-advantaged retirement savings plan to a Roth IRA in 2018 and the value of the account declines from the date of the conversion, the individual cannot undo the conversion.
The Tax Cuts and Jobs Act (TCJA), signed into law by President Trump at the end of 2017, includes provisions that dramatically cut taxes and provisions that offset a fraction of the revenue loss by eliminating or limiting certain tax breaks. The Tax Cuts and Jobs Act of 2017 (TCJA) made dramatic changes to the rules for individuals that affect tax planning at all stages of life. 529 rollover. For example, the same $10,000 cap on the itemized deduction for state and local taxes starting in 2018 applies for both married couples and singles. There have, however, been some changes to note. These changes will sunset in 2025. The following states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Edited by CPAs for CPAs, it aims to provide accounting and other financial professionals with the information and analysis they need to succeed in today’s business environment.
James A.J. (Keep in mind that the amount of the deduction and whether you need to use a state-sponsored plan differ by state.). The Tax Cuts & Jobs Act delivers tax cuts to lower- and middle-income families and makes American businesses more competitive. How the Tax Cuts and Jobs Act Has Changed the 529 Plan, This material is for educational purposes only and is not intended to provide specific advice, Tuition, fees, books, supplies, and equipment, The purchase of computer or peripheral equipment, computer software, or Internet access and related services (Here, the equipment or service must be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school.). Provisions of the Tax Cuts and Jobs Act That Will Raise Taxes. One indirect impact of the TCJA has been that some large employers have announced increases in their 401(k) contributions on behalf of employees. Some states also offer state tax deductions for contributions up to certain limits. ___ Review insurance coverage in light of elimination of the deduction for theft and casualty losses (other than federally declared disasters). See FEMA’s website for disaster designations (https://www.fema.gov/disasters). Perhaps most important, this applies to tuition, which is defined as follows: In the past, the only other option to cover these costs was the Coverdell ESA, but it is likely that many of your clients earn too much to even contribute. Starting in 2018, the 0% rate applies for taxable income up to $77,200 on a joint return or for surviving spouses, $51,700 for heads of household, and $38,600 for singles and married persons filing separately. The 529 college savings plan is a tax-deferred account.
Individuals who support their elderly parents can continue to deduct the medical costs they pay for their parents on their own returns, even though their parents are not dependents. 529 plans involve investment risk, including the possible loss of funds. Parents can continue to opt to report a child’s unearned income as their own under certain conditions. There have been no changes to the rules for health savings accounts (HSA). Major elements of the changes include reducing tax rates for businesses and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptionsand making it l… Will you revisit your education savings strategies given these changes to the 529 plan? The rules for determining a dependent continue to come into play for various purposes, however, such as the child tax credit, which has been greatly enhanced. Starting in 2018, 529 plans can be used for this purpose. 2254 — 115th Congress: Tax Cuts and Jobs Act.” www.GovTrack.us. Opportunity zones are economically disadvantaged areas designated by the government. ___ Assess the tax savings, if any, that may result from the child tax credit. Of course, not every state has state taxes or gives a deduction. The dependency exemption for a child, which was $4,050 in 2017, has been eliminated for 2018 through 2025.
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