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Tax Ceilings, Rates and Limitations for 2018

December 21, 2017

Here are updated tax amounts and limits for 2018 for selected items. Note that prior tax laws apply to 2017 tax returns.

Social Security maximum wage base for 2018 increased to $128,400. Amounts withheld at the 6.2% rate from an employee will now be $7,960.80 with the employer matching it. A self-employed person will pay the employee’s and employer’s shares which will be almost $15,921.60. The 1.45% Medicare tax is in addition to this and there is no salary cap on that. The employer will match employee’s amount and the self-employed will pay both shares. The employee’s total withholding tax will be7.65% and self-employed will be 15.3% on amounts up to the $128,400 wage base and 1.45% and 2.9% on amount over that.

Capital Gains: Maximum rate is 20% plus 3.8% if the Net Investment Income Tax applies. The 0% rate will apply to extent ordinary income is taxed at a rate below 25%. A 15% rate is for individuals taxed at a 25% ordinary income tax rate or higher but below the 39.6% rate. The rate is 25% for unrecaptured Section 1250 depreciation; and 28% for long term sales of collectibles.

Alternative Minimum Tax exemption for those married filing jointly will be $109,400 and for singles $70,300. There will be exemption phase outs. This should be eliminated for many taxpayers since the main reason many were subjected to the AMT was the adding back of the state and local tax deductions which have been reduced to a maximum of $10,000 for 2018.

Personal exemption for 2017 is $4,050 and starts to phase out when joint and single AGI reaches $313,800 and $261,500. Note that exemptions have been eliminated for 2018.

Gift Tax Annual Exclusion: The 2018 gift tax exclusion will be $15,000 per person receiving a gift. This is doubled if there is a consenting spouse.

Estate and Gift Tax Lifetime Exemption: $11,200,000. For gifts this is doubled if there is a consenting spouse.

IRA contribution limit is $5,500 and an extra $1,000 for those who are age 50 and over. The limits apply for both traditional and Roth IRAs. There are phase outs for traditional IRAs for taxpayers covered by an employer plan; and for Roth IRAs based on AGI.

401k, 403b and most 457 plan contribution limits: $18,500 plus $6.000 for taxpayers past their 50th birthday except for 457 plans where special amounts apply for those within 3 years of retirement.

Defined contribution limits: $55,000 with no catch up amounts for those past their 50th birthday.

Solo 401k plan combined with a profit sharing plan: $55,000 plus $6,000 for those past their 50th birthday.

SIMPLE plan limits are $12,500. The extra over age 50 amount is $3,000.

Retirement plan tip: Consider making your 2018 contributions in January 2018 or as early in the year as you could so the tax deferred earnings start. Also, some plan contributions for 2017 can be made in 2018 and some of the plans can be opened in 2018 for the 2017 tax year. Further, do not overlook IRA contributions for non-working spouses. Self-employed people with no employees should consider a solo 401k combined with a profit sharing plan – if you qualify for 2017, open it ASAP! This must be done before Dec 31, 2017. If you never opened a business retirement account, you can open a SEP in 2018 retroactive for the 2017 tax year. Some of these rules are technical and complicated, but can provide great current tax savings and deferrals. Check with your tax advisor about what applies to you.

There are other items but these cover the most widely items I get questions about. All of these amounts and limits should be checked for applicability with your tax advisor.

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