Explaining TCJA changes

Alerting Clients to TCJA Changes: Part Two

Jan 10th 2019
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Last week, I discussed changes introduced by President Trump’s signature legislative accomplishment, the Tax Cuts and Jobs Act (TCJA). This is a complicated piece of legislation that will affect all of your clients, so it’s important they understand it.

Here are a few other topics you should be prepared to cover:

Standard deduction amounts for individuals who don’t itemize: The TCJA roughly doubled the amounts available to persons who opt not to itemize. It continued the practice of “indexing” them, meaning they’re adjusted annually to reflect any intervening inflation. 

For married persons filing jointly and qualifying widows/widowers (surviving spouses who qualify for the same breaks as married couples for two years after a spouse dies), the allowable amounts are $24,000 for 2018 and $24,400 for 2019. For heads of household, they’re $18,000 for 2018 and $18,350 for 2019. For single and married persons filing separate returns, they’re $12,000 for 2018 and $12,200 for 2019.

Couples filing separately: The IRS requires these individuals to be consistent in claiming the standard deduction or itemizing. If one spouse itemizes, the other must also do so, and they can’t claim the standard deduction.

Age and blindness: The law authorizes higher amounts for individuals who are older than 65 or legally blind.

The IRS determines age and blindness as of December 31 of the year in question. However, if a person’s 65th birthday is January 1 of, say, 2019, the IRS treats them as reaching age 65 on the last day of 2018.

If a person is totally blind, his or her return should be accompanied by a statement to that effect. If they aren’t (their vision can’t be better than 20/200 in the better eye with glasses, or their field of vision must be limited to 20 degrees or less), the return should be accompanied by a statement from a physician skilled in eye diseases or a registered optometrist. It must certify the individual qualifies for the additional standard deduction.

If there’s no reasonable probability that the person’s vision will ever improve beyond these limits, a certification to this effect from said physician should be attached to the return. If this is done, future returns need only have a statement referring to the original certificate.

Switching from itemizing to the standard deduction: For some of my clients, the switch affords them an uncomplicated, perfectly legal way to lose less to the IRS. But there’s less to this maneuver than meets the eye. When 1040 time rolls around, some switchers will learn what they save actually doesn’t amount to all that much.

Switchers aren’t locked into using the standard deduction for future years. Each one stands on its own. So in the following year, it’s okay to resume itemizing and again deduct payments for things like state and local taxes and contributions.

For other clients, itemizing remains worthwhile. Here too, however, the actual tax benefit of itemizing might prove to be modest, as the total of their deductions barely surpasses their standard one. That’s especially true when spouses file jointly and are both older than 65.

In a subsequent column, I’ll discuss more changes introduced by the TCJA.

Additional articles: A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 275 and counting). 

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