The Tax Cuts and Jobs Act passed both houses of Congress on December 20, 2017. This is the most sweeping change to the income tax laws since 1986. The tax bill affects taxpayers from all levels from low income to high income earners. The provisions of the new tax law will not apply to income tax year 2017. Strangely, all the changes affecting individuals expire after 2025.
The main area of change for individuals is to greatly reduce the use of Schedule A Itemized Deductions on individual income tax returns. Currently about 30% of taxpayers use Schedule A but that will probably be reduced to under 10% of all taxpayers.
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Tax Cuts and Jobs Act |
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Old |
New |
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Business |
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| Corporate tax rates are 15%, 25%, 34%, 39%, 34%, 35%, 38%, 35% | Corporate tax rate is a maximum rate of 21% |
| Alternative minimum tax | Eliminated |
| Depreciation rules | Allows businesses to expense the cost of new equipment used in the business |
| Interest expense | Limits interest expense deduction to 30% of income |
| Research & Development credit | No change until 2022 when they will have to be amortized over 5 years |
| Companies owe US taxes on all income earned in any country | Companies will not be taxed on foreign earnings. However, they will be required to pay a tax on previous earnings held offshore of 15.5% on cash assets and 8% on non-cash assets |
| New deduction of 20% of “qualified business income” from partnership, S-corporation or sole proprietorship and REITs | |
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Individuals |
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| Current tax rates:
10%, 15%, 25%, 28%, 33%, 35%, 39.6% |
New Tax Rates:
10%, 12%, 22%, 24%, 32%, 35%, 37% |
| Current personal exemption is $4,050 | Eliminated |
| Standard Deduction is $6,300 for Single and $12,600 for Married Filing Jointly | Standard Deduction is $12,000 for Single and $24,000 for Married Filing Jointly |
| Tuition waivers for grad students are tax free | No change |
| Child Tax Credit | Child Tax Credit raised to $2,000 of which $1,400 is refundable |
| Child Tax Credit for Single up to $75,000 and Married Filing Jointly up to $110,000 | Child Tax Credit for Single up to $200,000 and Married Filing Jointly up to $400,000 |
| Section 529 | Section 529 distributions limited to $10,000 per student per year. The funds can be used for K-12 as well as college |
| New nonrefundable credit of $500 for qualifying dependents who are not qualifying children | |
| Deduction for student loan interest up to $2,500 | No change |
| Moving expenses | Eliminated except for active duty military |
| Educators deduction is $250 | No change |
| Electric vehicle credit is $7,500 | No change but limited to first 200,000 cars sold by each manufacturer |
| Gain on sale of principal residence is $250,000 for Single and $500,000 for Married Filing Jointly | No change |
| Long-term capital gains tax rates are 0%, 15% and 20% | No change |
| Health Insurance Mandate that everyone must have pay for a minimum level of health care | Eliminated after 2018 |
| Estate tax rate is 40% | No change |
| Estate tax exemption is $5.5 million per person | Doubles the estate tax exemption from $5.5 million per person to $11 million per person |
| Alimony is deductible by payor and taxable to payee | For individuals who get divorced after 2018, alimony is not deductible by payor or included in income of payee |
| Alternative Minimum Tax starts at $54,300 for Single and $84,500 for Married Filing Jointly | Alternative Minimum Tax starts at $70,300 for Single and $109,400 for Married Filing Jointly |
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Schedule A |
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| Medical deductions above 10% of AGI | Medical deductions above 7.5% of AGI |
| State income tax deduction | These deductions are limited to $10,000 total for either property taxes and income taxes or property taxes and sales taxes per tax return (same for Single or Married Filing Jointly) |
| State and local sales tax deduction | |
| Property tax deduction | |
| Mortgage interest deduction limited to interest on first $1,000,000 | Mortgage interest deduction limited to interest on first $750,000 on new purchases after December 16, 2017. Includes first and second residences |
| Interest on HELOC allowed up to $100,000 | HELOC interest no longer deductible |
| Charitable deductions limited to 50% of income | Charitable deductions limited to 60% of income. |
| Casualty and theft losses | Limited to presidentialy declared disaster |
| Job expenses and miscellaneous deductions | Eliminates job expenses and miscellaneous deductions |
| Tax preparation fee deductible | Eliminated |
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2018 Income Tax Brackets |
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| Tax Rate | Single | Married Filing Jointly |
| 10% tax bracket | $0-$9,525 | $0-$19,050 |
| 12% tax bracket | $9,526-$38,700 | $19,051-$77,400 |
| 22% tax bracket | $38,701-$82,500 | $77,401-$165,000 |
| 24% tax bracket | $82,501-$157,500 | $165,001-$315,000 |
| 32% tax bracket | $157,501-$200,000 | $315,001-$400,000 |
| 35% tax bracket | $200,001-$500,000 | $400,001-$600,000 |
| 37% tax bracket | $500,000- | $600,001- |
Bruce Raine Income Tax Services 