10 | RKL 2018 Year-End Tax Planning Guide RKL 2018 Year-End Tax Planning Guide | 11 Popular Education Tax Provisions Remain Tax reform retained several tax credits and deductions popular with parents, student borrowers and educators, including: • American Opportunity Tax (formerly Hope) Credit – no change: For the American Opportunity Tax Credit, taxpayers with incomes of under $90,000 (single) or $180,000 (married filing jointly) may be eligible for a maximum credit of $2,500 for qualified tuition, fees and course material expenses paid during the tax year for themselves or their dependents who have not completed the first four years of post-secondary education. The credit is per eligible student. • Lifetime Learning Credit – no change: The Lifetime Learning Credit is capped at $2,000 per tax return and phases out for taxpayers with adjusted gross income above $66,000 (single filers) and $132,000 (married filing jointly). This credit is available to offset expenses related to tuition, fees and course-related books, supplies and equipment for all years of higher education, including additional courses to acquire or improve job skills. • Student loan interest deduction – no change: The Tax Cuts and Jobs Act preserved this provision, which allows borrowers to deduct education loan interest up to $2,500 per tax year, subject to annual income limitations of $80,000 (single) and $165,000 (married filing jointly). • Student loan indebtedness discharge – expanded: Loans discharged after December 31, 2017, will no longer be included in taxable income. Tax reform expanded the definition of discharge to include death and permanent disability. These changes take effect in 2018 and expire in 2026. • Educator expense deduction – no change: Teachers dipping into their own wallets to buy supplies for their classrooms can still deduct up to $250 of purchases. • 529 plans – expanded: Distributions from 529 plans can now cover up to $10,000 of educational expenses for designated beneficiaries enrolled at a public, private or religious elementary or secondary school. TUITION & FEES DEDUCTION Off the Table ABLE ACCOUNTS for Individuals with Disabilities The Bipartisan Budget Act of 2018, not the Tax Cuts and Jobs Act, retroactively extended the tuition and fees deduction for the 2017 tax year. Without further legislation action to renew or extend, however, taxpayers will not be able to take advantage of this deduction on their 2018 returns. Achieving a Better Life Experience (ABLE) programs allow individuals and families to save for qualified disability related expense, like housing, transportation and education. Annual contributions are capped at the gift tax exclusion in place at the time, savings grow tax-free, withdrawals are exempt from federal and state income tax when used for qualified expenses and accounts are exempt from inheritance tax and excluded from determination of eligibility for other government benefits. The repeal of the shared responsibility requirement of the Affordable Care Act, commonly referred to as the individual mandate, was a key headline of tax reform coverage. The tax law reduced the penalty for not maintaining health insurance to $0, effective starting after December 31, 2018. The IRS cautioned that returns submitted for tax year 2018 that do not report full-year coverage, report a shared responsibility payment or claim a coverage exemption will be rejected as incomplete and inaccurate. Ways to Save for Health Costs: HSAs and FSAs Individuals and families have two tax-advantaged options to save for and pay current or future medical expenses for themselves, spouses and qualified dependents. The first, a Health Savings Account or HSA, provides three levels of benefit: • Contributions are tax-deductible (or pre-tax if made through payroll deduction) • Interest earned on the account is tax-free • Withdrawals from the account are tax-free for qualified medical expenses not previously reimbursed by insurance HEALTH CARE & YOUR TAXES 2018 CONTRIBUTION AND OUT-OF-POCKET LIMITS FOR HEALTH SAVINGS ACCOUNTS AND HIGH-DEDUCTIBLE HEALTH PLANS HSA contribution limit (employer + employee) Self-only: $3,450 Family: $6,900 HSA catch-up contributions (age 55 or older) $1,000 HDHP minimum deductibles Self-only: $1,350 Family: $2,700 HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts excluding premiums) Self-only: $6,650 Family: $13,300 A Flexible Spending Account (FSA) retains the pre-tax contribution and tax-free growth and withdrawal advantages of HSAs but differ in several key ways. FSAs can be used in tandem with any health plan (not required to be high-deductible). Money saved in an FSA must be used by the end of a calendar year or it is forfeited. Taxpayers should familiarize themselves with their plan’s terms and conditions to ensure they are not leaving money behind.