Tax Laws for 2018 & 2019

The highlights of the new Tax Law changes taking effect in 2018 and 2019.

Some people will pay less due to the new tax law; others will pay more.  The major changes for personal tax returns starting in 2018 are as follows.  One important change to note is that un-reimbursed job expenses can no longer be deducted on your tax return (except perhaps for ministers’ Social Security Tax calculations). See the Key Strategy at the end of this page.

Caution:  Most employers have reduced tax withholding; you may owe more tax when filing for 2018 and 2019.

Tax reductions:

(A) Lower tax rates.

(B) Significantly increased standard deduction.

(C) Increased Child Tax Credit to $2,000 per child under 17.

(D) $500 tax credit for dependents over 16.

(E) Greatly increased threshold ($400 k if MFJ) before Child Tax Credit is phased out.

(F) 20% deduction, subject to limits, for income from sole proprietorships, partnerships, S corps, and rentals.

Tax increases:

(A) Personal exemption allowance of $4,050 per person is eliminated.

(B) No deduction for un-reimbursed employee job expenses, investment expenses, safe deposit box, and most tax preparation fees.  Some tax preparation fees may still be claimed on Schedules C & E.

(C) Home mortgage interest no longer deductible unless for purchase or improvement of home.  Deductions eliminated: home equity loan interest and cash-out refinance interest unless to improve the home; interest on the portion of home loans greater than $750,000 for home bought after 12/14/17.  These changes do not alter what can be claimed for the clergy housing allowance.

(D) The itemized deduction for state and local tax and property tax is limited to a total of $10,000.

(E) Moving expense are no longer deductible, except for some military.

(F) Employer-paid moving expense is now taxable to you.

Special Situations:

(A) Casualty & Theft Losses are no longer deductible except in federally declared disaster areas.

(B) The penalty for not having health insurance is eliminated starting in 2019.

(C) For post-2018 divorces, alimony is not deductible by the payer nor taxable to the recipient.

(D) The amount that you can leave to your heirs without any estate tax has roughly doubled to $11.2 million ($22.4 million for married couples).

(E) Dependents with over $2,100 of investment income and/or taxable scholarship income may pay much more tax than before.

(F) You can no longer “undo” a conversion to Roth IRA.

(G) 529 Plan distributions can now be used for tuition at elementary or secondary public, private or religious schools, up to $10,000 per student.

Key Tax Strategy:

Because employee un-reimbursed job expenses cannot be claimed on your 2018 tax return (except for ministers’ Social Security Tax calculations), have your employer reimburse all job expenses. Here’s why we recommend that you look into an accountable plan.

1. Using a properly set up accountable plan provides a tax-free fringe benefit with state, federal and Social Security tax reduction for the minister. 

This is about the only way, excluding a clergy 403(b) retirement plan, to get a reduction in Social Security tax.  For ministers’ in Social Security, that can mean a 15% savings even if you pay no state or Federal tax right now.

2. It doesn’t cost the church or you anything extra. It usually just requires a restructure of your pay      package and designates part of what you already spend on expenses as ministry COSTS. Implementing a proper accountable plan will often increase ministers take home pay because they don’t have to pay unnecessary tax on the part of their salary that they’re spending to do their job. It differentiates the ministers’ salary from the churches cost of running a ministry, and can channel more resources into growth instead of after tax dollars.

3. It takes a one-time agreement (unlike housing designations) to implement and then it just goes on until you need to change or adjust it. We can even supply free forms and sample documents with step by step instructions so you know what to deduct, how much and when. You’ll find a whole list of other legitimate expenses beyond the usual computer/technology and car expenses that most people think of as business-related here.

4. These plans are designed by congress to apply to all employees, not just ministers. This is the way congress intends and encourages you to account for ministry expenses. It’s good business and stewardship.

5. Step by step instructions  in our “How to Set Up an Accountable plan” video with a downloadable guide and sample documents are available with the video instructions.  Now, you and your treasurer can understand how easy an accountable plan is and why it’s the best way to handle ministry expenses.