The 2018 tax year annual inflation adjustments, which affect more than 50 tax provisions, have been announced by the Internal Revenue Service. Revenue Procedure 2017-58 (Oct. 19, 2017). Here is a summary of what to expect:
Standard deduction: For married couples that file jointly in the 2018 tax year, the standard deduction will be $13,000.00, an increase of $300.00 from the 2017 tax year. The standard deduction will be $6,500.00 for single taxpayers as well as married individuals that file separately, an increase of $150.00 from the 2017. The standard deduction will be $9,550.00 for heads of households, an increase of $200.00 from the 2017 tax year.
Personal exemption: For tax year 2018, the personal exemption will be $4,150.00 compared with $4,050.00 in 2017. This exemption contains a phase-out beginning with an adjusted gross income (AGI) of $320,000.00 for married couples that file jointly, or $266,700.00 for single taxpayers that are not head of household or a surviving spouse. It completely phases out at $442,500.00 for married couples that file jointly, or $389,200.00 for single taxpayers that are not head of household or surviving spouse.
Marginal rate: In the 2018 tax year, a 39.6% tax rate will affect single taxpayers with incomes exceeding $426,700.00, compared with $418,400.00 in 2017. The 39.6% tax rate will affect married couples that file jointly with incomes exceeding $480,050.00, compared with $470,700.00 in 2017. The Revenue Procedure also details the income tax thresholds for marginal rates of 10%, 15%, 25%, 28%, 33% and 35%.
Itemized deduction: For tax year 2018, individuals with incomes of at least $266,700.00 (or $320,000.00 for married couplies that file jointly) will be subject to a limitation on the itemized deductions that can be claimed.
Alternative minimum tax: In the 2018 tax year, the alternative minimum tax exemption amount is $55,400.00 (up from $54,300.00 in 2017), which starts phasing out at $123,100.00. The exemption is $86,200.00 (up from $84,500.00 in 2017) for married couples that file jointly, which begins to phase out at $164,100.00. For taxpayers whose taxable incomes exceed $191,500.00 (or $95,750.00 for married individuals that file separately), a 28% tax rate applies.
Earned income credit: For the 2018 tax year, taxpayers who file jointly that have at least three qualifying children get a maximum earned income credit equaling $6,444.00 (compared with $6,318.00 in 2017). Maximum credit amounts for phase-outs, income thresholds and other categories are addressed in the Revenue Procedure.
Annual gift exclusion: For the 2018 tax year, the annual exclusion for gifts is $15,000.00, up from $14,000.00 in the 2017 tax year.
Estate tax exclusion: The estate of a decedent dying in the 2018 calendar year will have a basic exclusion amount totaling $5,600,000.00, an increase of $110,000.00 compared with the 2017 tax year.