Leon C. LaBrecque, JD, CPA, CFP™, CFA
Matthew K. Teetor
The new tax law is far-reaching and substantial. The following is a summary of some of the provisions of the new law, and how they affect Michigan Law Enforcement and Firefighters.
1. There are still seven brackets. The 10% bracket remains the same and each of the other brackets are reduced. Overall, most people we look at will pay less in taxes. The difference lies in the itemized deductions.
2. Standard deduction. The standard deduction is the amount everyone can deduct, irrespective of their expenditures. The new standard deductions are $12,000 (single) and $24,000 (married). You can deduct more if your total itemized deductions exceed the standard deduction.
3. Itemized deductions. You can deduct unreimbursed medical expenses if they exceed 7 ½% of Adjusted Gross Income (this is for 2017 and 2018), plus state and local taxes up to $10,000, plus mortgage interest, plus charitable contributions. Remember your itemized deductions need to exceed your standard deduction to be deductible.
4. Elimination of employee business expenses. A change that will affect many Michigan first-responders is the elimination of employee business expenses, also called “Miscellaneous Itemized Deductions.” In the past, first-responders had a cadre of expenses they could deduct if the total of costs exceeded 2 ½% of Adjusted Gross Income. These expenses included union dues, uniforms and equipment, dry cleaning (if covered by the officer), registrations, association dues, range dues, conventions and seminars, safety equipment, and mileage to training. These expenses are no longer deductible as an itemized deduction.
5. Child credit. The child credit is increased to $2,000 per qualifying child, of which $1,400 is refundable. The credit limits out at a higher income limit of $110,000 (single and $400,000 (married). Personal exemptions are eliminated.
6. 529 Plans. The tax-free saving plan for kids, called the §529, is expanded to allow up to $10,000 a year to be used for tuition at colleges and post-secondary, and for K-12 education, private or religious.
7. Pass-through. A lot of small businesses, like rental properties, sole proprietorships, partnerships and subchapter S corporations will be able to take advantage of new provisions of a pass-through income deduction. It’s quite complicated, but the owners of a pass-through business can, in certain cases, get a deduction for 20% of their business income. This is a big change from the past.
Lots to consider. Although most of these changes won’t impact your 2017 tax return, you should pay attention to some of these changes (especially the pass-through on businesses) going forward. As always, we’re here to serve those who serve us!