2018 IRS Cost of Living Increases

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    by Gerald V. Krach, CPA, Partner

    The big news circulating the tax world right now is the potential “overhaul” of the tax code. Just last week, The Senate placed a substantial bill before Congress that will dramatically change the way many Americans will file their income tax returns. This newsletter is not going to address any of the proposed changes, as they have not yet become law, but will address things that we know ARE actually going to occur…cost of living increases (COLA).

    The tax brackets have been expanded. The increases vary by filing status and income level. Taxpayers in the lowest brackets will pay tax at only the 10 percent level on an extra $200. People in the highest bracket will be able to earn an additional $9,350 before reaching the 39.6% bracket.

    The bracket for the Alternative Minimum Tax (AMT) has also increased by $3,700.

    The credit received for paying tuition to college during the first four years, the American Opportunity Credit, has phase out issues if the taxpayer makes too much money. The threshold, $180,000 for married filing jointly, remains unchanged.

    The credit for paying college tuition after the first four years, the Lifetime Learning Credit, also has phaseout thresholds. The 2018 threshold increases by $2,000.

    Contributions allowed to Individual Retirement Accounts (IRA), traditional or Roth, remain unchanged at $5,500. The catch-up provision for those over fifty years of age also remains $1,000.

    Contribution limits to the 401k and 403b retirement plans increase by $500 to $18,500.

    The annual gift tax exclusion has increased by $1,000 from $14,000 to $15,000. The annual exclusion is indexed for inflation but is rounded to the next lower multiple of $1,000. As a result, the exclusion had remained at $14,000 since 2013. Get used to the $15,000 amount, as it will be with us for several years to come.

    The above highlights address the COLAs for 2018. I did not dig too deeply in the details of all the different tax brackets and the AMT. Please call me or your planner to discuss your personal situation if you have any questions. The tax code is changing, and we may know more definitive details by the next newsletter.