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How To Use the Professional Edition of Your Income Tax 2018

Tax alert symbols. Throughout the text of Your Income Tax, these special symbols alert you to advisory tips about filing your federal tax return and tax planning opportunities:

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A Filing Tip or Filing Instruction helps you prepare your 2017 return.

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A Planning Reminder highlights year-end tax strategies for 2017 or planning opportunities for 2018 and later years.

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A Caution points out potential pitfalls to avoid and areas where IRS opposition may be expected.

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A Law Alert indicates recent changes in the tax law and pending legislation before Congress.

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A Court Decision highlights key rulings from the Tax Court and other federal courts.

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An IRS Alert highlights key rulings and announcements from the IRS.

Visit www.jklasser.com
for FREE download of e-Supplement

You can download a free e-Supplement to Your Income Tax 2018 at www.jklasser.com. The e-Supplement will provide an update on tax developments from the IRS and Congress, including a look ahead to 2018 and the sweeping tax reform changes made by the Tax Cuts and Jobs Act.

On the homepage at jklasser.com, you will find free tax news, tax tips and tax planning articles.

The PROFESSIONAL EDITION of Your Income Tax is divided into two volumes.

Volume I includes the complete 2018 edition of Your Income Tax, which for 81 years has helped subscribers solve their tax problems and has proven to be a solid reference work for tax professionals.

Volume II expands the usefulness of Your Income Tax for tax professionals by providing citations of tax authorities and sections devoted to practice before the IRS.

VOLUME I: YOUR INCOME TAX (Parts 1–8)

This volume includes the 2018 edition of Your Income Tax. The contents start on page v, and the index begins on page 971.

VOLUME II: PROFESSIONAL TAX PRACTICE (Parts 9–11)

This volume includes the following technical tax information:

TAX LAW AUTHORITIES (Part 9). Here is an explanation of tax authorities—legislative, administrative, and judicial—and their relative importance in the practice of tax law. Part 9 begins on page 807.

CITATIONS OF AUTHORITY (Part 10). Here are key authorities for the text of Your Income Tax that can save you time and effort in researching income tax problems. The authorities cited are the Internal Revenue Code, IRS regulations and rulings, and court decisions. Part 10 begins on page 813.

PRACTICE BEFORE THE IRS (Part 11). This section discusses how to handle tax audits and obtain a ruling from the IRS. Also discussed are the Circular 230 practice requirements and tax preparer penalties. Part 11 begins on page 929.

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Legislative Alert for 2018

When this book was finalized, Congress had just approved and sent to the President for his signature the Tax Cuts and Jobs Act. Listed below are key proposals for individuals that take effect for 2018 (except where noted) and expire at the end of 2025. See the e-Supplement at jklasser.com for further details on these and other new law provisions for individual taxpayers and business owners.

Tax rates

The top individual income tax rate drops to 37%, with lower rates of 35%, 32%, 24%, 22%, 12% and 10%. Owners of pass-through entities will pay the individual income tax rates on their profits, but subject to several restrictions and limits, a 20% deduction for this income may be available (i.e., qualifying taxpayers pay tax on only 80% of the pass-through income).

The prior-law zero, 15% and 20% maximum rates for net capital gain and qualified dividends are retained, with an inflation adjustment to the 2017 income cutoffs between the zero and 15% rates, and between the 15% and 20% rates.

Standard deduction increased but personal exemptions repealed

The deduction for personal and dependency exemptions is eliminated, but the standard deduction is increased to $24,000 for joint filers, $18,000 for heads of households, and $12,000 for other filers. These amounts will be indexed for inflation for years after 2018. Taxpayers who are age 65 or older or blind may continue to claim the additional standard deduction.

Less generous inflation adjustments

The new law uses the so-called “chained CPI” (the C-CPI-U, rather than the CPI-U which was used under prior law) to figure inflation adjustments. This means that there will be smaller inflation adjustments to the tax rate brackets and the standard deduction, and other amounts subject to inflation adjustments.

Child tax credit

The amount of the child tax credit is doubled to $2,000 per qualifying child, and this is increased by a new nonrefundable $500 credit for a qualifying dependent other than a qualifying child. The AGI phase-out threshold is increased to $400,000 for joint filers or $200,000 for all others; these thresholds will not be indexed for inflation. The refundable portion of the child tax credit is limited to $1,400 (subject to inflation adjustments after 2018) and the earned income threshold for figuring the refundable portion is $2,500.

Deductions from gross income

The deduction for alimony payments (and required inclusion in income for recipient) is eliminated for payments under agreements entered into or substantially changed after 2018. The deduction for moving expenses is also eliminated, except for members of the Armed Forces.

Itemized deductions

The medical expense deduction is retained, with the 7.5%-of-adjusted-gross-income floor applying to all taxpayers for 2017 and 2018; after 2018 the floor will be 10% of AGI.

The cap for deducting mortgage interest for buying or building a first or second home is lowered to $750,000 (from the prior law $1 million cap), or $375,000 if married filing separately (from the prior law $500,000 cap), but the prior law $1 million/$500,000 cap still applies for acquisition indebtedness incurred on or before December 15, 2017. However, interest on home equity debt is no longer deductible.

The aggregate deduction for state and local income taxes (or sales taxes in lieu of income taxes) and property taxes is capped at $10,000 ($5,000 if married filing separately).

The percentage limit for deductible charitable contributions is raised to 60% of AGI for cash donations to public charities, but no deduction is allowed for donations in exchange for college athletic event seating rights.

The casualty loss deduction is eliminated, except for losses in federally-declared disasters. Miscellaneous itemized deductions subject to the 2%-of-AGI floor (such as unreimbursed job expenses for employees, investment fees, tax preparation expenses) are also eliminated. The phase-out of itemized deductions for high-income taxpayers is repealed.

2016 disaster area relief

Special rules are provided for distributions from qualified retirement plans and casualty loss deductions related to a qualified 2016 disaster.

Recharacterizing conversions to Roth IRAs