8 | RKL 2018 Year-End Tax Planning Guide RKL 2018 Year-End Tax Planning Guide | 9 Tax Reform Impact on AMT While the individual alternative minimum tax (AMT) remained in the Tax Cuts and Jobs Act, there are some alterations, including a temporary increase through 2025 of the exemption amount to $109,400 for joint filers, $125,000 (married filing separately) and $70,300 for all others (excluding estates and trusts). The exemption phase-out level is also raised to subject income of $1 million and above (joint filers) and $500,000 (all other filers) to AMT. The exemption amounts outlined below will be adjusted annually for inflation. Unlike deductions, many of the popular tax credits enjoyed by individuals and families were retained by tax reform or even enhanced. Most notably, the child tax credit was significantly expanded – read on for more details. Keep in mind the two types of tax credits: refundable and nonrefundable. Refundable tax credits are treated as payments of tax made during the year, so credits in excess of tax owed will result in a refund from the IRS. Any excess nonrefundable tax credits will not be returned to the taxpayer. Child Tax Credit Expanded Tax reform temporarily doubles the Child Tax Credit to $2,000 for each qualifying child under the age of 17. There is no change to the definition of qualifying child. The Child Tax Credit starts to phase out by $50 for each $1,000 of modified adjusted gross income (AGI) over $400,000 for married filing jointly taxpayers and $200,000 for other filing statuses. The majority of the Child Tax Credit is refundable and will be indexed for inflation. For 2018, the refundable amount is $1,400 per eligible child. New Other Dependent Credit Available A new $500 credit was introduced for any dependents who are not qualifying children under age 17. There is no age limit for the $500 credit, but the tests for dependency must be met. This $500 credit is nonrefundable and begins to phase out at modified AGI of $200,000 ($400,000 if married filing jointly). Like the Child Tax Credit, this credit will be indexed annually for inflation. AMT & ADDITIONAL TAXES TAX CREDITS TAX EXEMPTIONS FILING STATUS 2018 EXEMPTION AMOUNT Single/Head of Household $70,300 Married Filing Jointly/Surviving Spouse $109,400 Married Filing Separately $54,700 Net Investment Income Tax Certain individuals may be subject to a 3.8 percent tax on net investment income (NII). Examples of NII include interest, annuities, dividends, net capital gain, rents and passive business or trade activities. NII is calculated as the lesser of (1) net investment income, or (2) excess of modified adjusted gross income (AGI) over the applicable threshold amount. Modified AGI thresholds are $250,000 (married filing jointly), $125,000 (married filing separately) and $200,000 (all other filers). There are several strategies to lessen NII exposure, so consider discussing these options with your tax advisor: • Shift taxable investments to tax-free vehicles • Offset the income with deductions • Group similar categories of investment income activities Additional Medicare Surtax Higher-income salaried or self-employed individuals must also pay a 0.9 percent additional Medicare tax on any wages, compensation or self-employment income exceeding the threshold amount of $250,000 (married filing jointly), $125,000 (married filing separately) or $200,000 (single). For wage earners, this tax may be withheld by employers. Both self-employed individuals and wage earners must report this tax via filing of Form 8959. TAKING CHILD TAX CREDIT? Don’t Forget SSN Tax reform eliminated personal exemptions so dependent Social Security Numbers are no longer necessary unless claiming the nonrefundable and refundable portion of the Child Tax Credit. The SSN must be issued prior to the due date of the tax return including extensions. For the new Other Dependent Credit, an SSN is not required, but an Individual Taxpayer Identification Number (ITIN) is. RKL 2018 Year-End Tax Planning Guide | 9