The following tax brackets are for the years beginning January 1, 2018.
|Single||Married Filing Joint||Married Filing Separate||Head of Household||Bracket|
|$0 - $9,525||$0 - $19,050||$0 - $9,525||$0 - $13,600||10%|
|$9,525 - $38,700||$19,050 - $77,400||$9,525 - $38,700||$13,600 - $51,800||12%|
|$38,700 - $82,500||$77,400 - $165,000||$38,700 - $82,500||$51,800 - $82,500||22%|
|$82,500 - $157,500||$165,000 - $315,000||$82,500 - $157,500||$82,500 - $157,500||24%|
|$157,500 - $200,000||$315,000 - $400,000||$157,500 - $200,000||$157,500 - $200,000||32%|
|$200,000 - $500,000||$400,000 - $600,000||$200,000 - $300,000||$200,000 - $500,000||35%|
|$500,000 +||$600,000 +||$300,000 +||$500,000 +||37%|
The standard deduction has been nearly doubled, which means the number of taxpayers who itemize will drop drastically. For single and married filing separate filers the standard deduction will be $12,000, married filing joint filers will have a standard deduction of $24,000, and head of household filers will have a standard deduction of $18,000.
The personal exemption has been decreased to $0.
Under the new rule, children are no longer subject to the tax rates of their parents for unearned income. Instead, unearned income is taxed at the trust and estate tax rate.
The 0%, 15%, and 20% brackets will remain in place. Though the legislature did discuss the requirement that taxpayers first sell the first shares purchased (the FIFO provision), this requirement did not make it into the final version of the joint committee.
Non-corporate taxpayers (including partnerships, S-corporations, sole proprietorships, and trusts and estates) with qualified business income can deduct:
- The lesser of (1) the combined qualified business income amount of the taxpayer or (2) 20% of the excess of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer; plus
- The lesser of (1) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year or (2) the taxable income (reduced by the net capital gain) of the taxpayer
Essentially, this just means that a portion of pass-through income can be deducted. Before you start calculating your deduction, be advised that this calculation is subject to some limitations, thresholds and exclusions.
Child Tax Credit
The child tax credit will be increased to $2K. Of this, up to $1,400 is refundable. The credit phases out for married filing joint taxpayers with income above $400K, or $200K for all other taxpayers.
State and local taxes – the deduction for the combined state and local taxes (including state income tax, real property taxes, and personal property taxes), will be limited to $10K.
Mortgage interest – taxpayers can deduct interest on home loans up to $750K. The deduction for interest on home equity indebtedness is suspended. The lower limit does not apply to acquisition indebtedness incurred before December 15, 2017. Refinancing will not reduce the limit so long as the refinanced loan is not greater than the refinanced indebtedness.
Charitable deduction – taxpayers will be able to deduct up to 60% of their income in a given year for contributions to both public charities and private foundations. Any excess contributions may be carried forward for up to five years.
Miscellaneous deductions – deductions subject to 2% of a taxpayer’s adjusted gross income will be eliminated.
Pease limitation – itemized deductions will no longer be subject to limitation for high income taxpayers.
Medical expenses – the threshold for the deduction will be reduced back to 7.5% for all taxpayers.
For divorce agreements entered into after December 31, 2018, alimony will no longer be deductible by the payor spouse, nor will the payee spouse report the amount as income.
Under the new plan, moving expenses incurred in connection for starting a new job are no longer deductible.
The Affordable Care Act
The penalty for failing to have health insurance will be reduced to $0 for years beginning after December 31, 2018. Note that the 3.8% net investment income tax and the .9% additional Medicare tax will remain in place.
Alternative Minimum Tax
The exemption amount will increase to $109,400 for joint returns, $70,300 for single taxpayers, and $54,700 for married filing separately (increased from $86,200, $55,400, and $43,100, respectively).
529 Savings Accounts
Under the new law, 529 savings accounts will no longer be limited to college tuition and expenses. The definition of qualified expenses will be expanded to include elementary or secondary public, private and/or religious schools.
For options exercised or restricted stock units settled after December 31, 2017, taxpayers can elect to defer recognition of the income. However, this only applies to qualified stock of an eligible corporation (stock cannot be readily tradable on an established securities market).
The estate and gift exemption amount will be doubled to $10M and adjusted for inflation through January 1, 2026.
- The corporate tax will be a flat rate of 21% for tax years beginning in 2018.
- The corporate level alternative minimum tax will be repealed.
- The maximum section 179 deduction will be increased to $1M and bonus depreciation is 100% for new or used property acquired between September 27, 2017 and January 1, 2023. Bonus depreciation will then phase down.
- The limit on depreciation for luxury automobiles will be increased.
- The depreciation period for qualified leasehold improvement, qualified restaurant and qualified retail improvement property placed in service in 2018 or later will be decreased to 15 years.
- Business interest will be limited to 30% of adjusted taxable income.
- The 2-year net operating loss carryback will generally be repealed; NOLs can be carried forward indefinitely. The deduction is limited to 80% of taxable income.
- The Domestic Production Activity Deduction will be repealed for non-corporate taxpayers beginning in 2018 and for corporate taxpayers beginning in 2019.
- Only real property will be eligible for like-kind exchange treatment.
- Specified research or experimentation expenses incurred in 2022 and later will be required to capitalized and amortized over a 5-year period (or 15 years if outside of the US).
- Deductions for entertainment expenses will be disallowed. The 50% limitation on meal expenses will be expanded to include meals provided through an in-house cafeteria or otherwise on the premises of the employer. Employers will not be able to deduct expenses for employee transportation fringe benefits (e.g. parking and mass transit), but the expenses are still excluded from employee income.
- The deduction for lobbying expenses with respect to legislation before local government bodies will be eliminated.
- Employers will be able to obtain a credit equal to 12.5% of wages paid to qualifying employees while on family and medical leave if the rate of payment is 50% of the wages normally paid to the employee. The credit increases for ever every percentage point the rate exceeds 50%.
- The taxpayer will be required to recognize income no later than the tax year in which such income is taken into account as income on a specified financial statement.
- The cash method may be used for taxpayers subject to the $25M gross receipts test, regardless of whether the business sells inventory.
- Percentage of complete accounting will only be required for businesses over the $25M gross receipts test.
- Temporary deferral of gross income will be allowed for capital gains reinvested in a qualified opportunity fund (QOF) and a permanent exclusion will be allowed for capital gains from the sale or exchange of an investment in the QOF.
- Corporate tax would become territorial – meaning corporations with foreign branches would not be subject to US income tax on foreign earnings.