Many of our clients have asked questions about how the new tax law, commonly know as the "Tax Cuts and Jobs Act" will affect them. We wanted to provide a little light reading on the this topic. If you have any other specific questions please contact us.
The new tax law, commonly called the "Tax Cuts and Jobs Act," is the biggest federal tax law change in over 30 years. Below are some significant changes affecting individuals and businesses. Note: Except where noted, the changes are effective for tax years beginning after December 31, 2017.
Individuals
Tax provisions that were eliminated:
- Personal exemption deductions are suspended.
- Phase-out of itemized deductions based on adjusted gross income (AGI) is suspended
- Itemized deduction for home equity interest (other than acquisition debt) is no longer allowed.
- Itemized deduction for miscellaneous itemized deductions subject to the 2% floor are no longer allowed. Examples include investment expenses, unreimbursed employee business expenses, and tax preparation fees.
- Personal casualty loss and theft deductions are eliminated unless the loss is incurred in a federally declared disaster area.
- The moving expense deduction and income exclusion is allowed only to members of the Armed Forces (or their spouses or dependents).
- No charitable contribution deduction is allowed for a payment to a higher educational institution in exchange for the right to purchase tickets or seating at an athletic event.
- Alimony is not deductible by the payer nor includible in income by the recipient for agreements entered into after December 31, 2018.
- Effective for 2019, the shared responsibiluty payment under the Affordable Care Act for not having minimum essential health insurance coverage is zero.
Tax provisions that were reduced:
- The 2018 individual income tax rates are:
| Single | | MFJ or QW |
| $0 - $9525 | 10% | | $0 - $19,050 | 10% |
| $9,525 - $38,700 | 12% | | $19,051 - $77,400 | 12% |
| $38,701 - $82,500 | 22% | | $77,401 - $165,000 | 22% |
| $82,501 - $157,500 | 24% | | $165,001 - $315,000 | 24% |
| $157,501 - $200,000 | 32% | | $315,001 - $400,000 | 32% |
| $200,001 - $500,000 | 35% | | $400,001 - $600,000 | 35% |
| $500,001 and over | 37% | | $600,001 and over | 37% |
| | | | |
| HOH | | MFS |
| $0 - $13,600 | 10% | | $0 - $9,525 | 10% |
| $13,601 - $51,800 | 12% | | $9,525 - $38,700 | 12% |
| $51,801 - $82,500 | 22% | | $38,701 - $82,500 | 22% |
| $82,501 - $157,500 | 24% | | $82,501 - $157,500 | 24% |
| $157,501 - $200,000 | 32% | | $157,501 - $200,000 | 32% |
| $200,001 - $500,000 | 35% | | $200,001 - $300,000 | 35% |
| $500,001 and over | 37% | | $300,001 and over | 37% |
- The 2018 estate and trust income tax rates are:
$0 - $2,550..............10% $9,151 - $12,500...............35%
$2,551 - $9,150.......24% $12,501 and over...............37%
- The threshold for deducting medical expenses is 7.5% of AGI for all taxpayers for 2017 and 2018
- The home mortgage interest deduction debt limit is reduced to $750,000 ($375,000 MFS) with certain exceptions.
- The itemized deduction for state and local taxes is limited to $10,000 ($5,000 MFS). (This limit includes both state and local income taxes and real property taxes.)
Tax provisions that were increased:
- The 2018 standard deduction is:
Single or Married Filing Separate...............................................$12,000
Married Filing Joint or Qualified Widow(er)..............................$24,000
Head of Household......................................................................$18,000
The following additional standard deduction applies for a taxpayer 65 or older, or blind, per person, per event:
MFF, QW, or MFS.......................................................................$1,300
Single or HOH.............................................................................$1,600
- The Child Tax Credit increased to $2,000 per qualifying child and the phase-out theshold increased.
- There is a new Family Tax Credit of up to $500 for dependants who are are not a qualifying child for purposes of the Child Tax Credit
- The 2018 alternative minimum tax (AMT) exemption and phase-out ranges are:
Exemption Amount
Single of HOH.....................................$70,300
MFJ or QW..........................................$109,400
MFS.....................................................$54,700
Phase-Out Range
Single or HOH....................$500,000 - $781,200
MFJ or QW.........................$1,000,000 - $1,437,600
MFS....................................$500,000 - $781,800
- For the charitable contribution deduction, the percentage of AGI limitation for cash to public charities and certain other organizations increased from 50% to 60%.
- The estate and gift tax exemption amount doubled to $10 million, before any adjustment for inflation.
Tax provisions that were changed:
- The long-term capital gain and qualified dividend income maximum tax brackets no longer follow the tax brackets for regular income tax purposes. The 2018 breakpoints are:
Single
$0 - $38,600...............................0%
$38,601 - $425,800....................15%
$425,801 and over......................20%
MFJ or QW
$0 - $77,200...............................0%
$77,201 - $479,000....................15%
$479,001 and over.....................20%
HOH
$0 - $51,700................................0%
$51,701 - $425,800.....................15%
$425,401 and over.......................20%
MFS
$0 - $38,600................................0%
$38,601 - $239,500.....................15%
$239,501 and over.......................20%
Estates and Trusts
$0 - $2,600...................................0%
$2,601 - $12,700..........................15%
$12,701 and over..........................20%
- The parents rate is no longer used to calculate the kiddie tax. Instead, taxable income attributable to net unearned income is taxed at the estates and trusts tax rates for both ordinary income and net capital gains.
This brochure contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more nformation. Copyright 2018 Tax Materials, Inc. All Rights Reserved.
