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Additional Tax Information

Unearned Income of Children (The Kiddie Tax)

  • Starting in 2018, children's unearned income will be taxed according to the trust tax brackets and will no longer tied to their parent's tax rates.

  • You can still elect to have your children's income reported on your return subject to the gross income rules (This usually applies when stock is sold.)

  • Earned income will still be taxed using the single brackets - no change

  • California has not adopted these changes and the child's income will be taxed at the parents' rates.

Net Operating Losses

  • NOL carrybacks have been eliminated starting in 2018 with a few rare exceptions.

  • The NOL deduction will be limited to 80% of the taxpayer's taxable income for the year of the claimed deduction.

  • Carryovers are unlimited (previously 20 years).

  • 2017 and prior year NOLs are not subject to the 80% rule so they must be tracked separately.

  • California did not adopt the above changes. They allow 100% and you can carryback losses 2 years and forward 20 years.

Roth Recharacterization

  • The TCJA repeals the rule allowing taxpayers to recharacterize Roth IRA conversions as traditional IRA contributions to unwind a Roth conversion effective for conversions starting in 2018.

  • You can still do "back door" Roth conversions. High-income individuals contribute to a traditional IRA and then roll the contribution over to a Roth IRA. You must understand that all IRA's are aggregated so you need to consult your CPA before doing this.

ACA Individual Mandate

  • The TCJA reduces the amount of the ACA individual shared payment to $0 starting 1/1/19. This means that you still are required to have health insurance for 2017 and 2018.