10 highlights of the tax cuts & jobs act for individuals

  1. The new tax law has some good news. Tax rates have gone down in 2018 for the majority of taxpayers. There are a few case where rates increase, including single taxpayers in the 33% bracket for 2017 will be at 35% for 2018. For married filing jointly, those in a 35% bracket in 2017 see no change for 2018. Most others filers see a decreased rate for the same taxable income amount.
  2. Your taxable income will not be the same in 2018. For starters, there are no more personal exemptions in 2018. This could be offset by the doubling of the standard deduction plus the increase in child tax credit for any children under 17.
  3. If you itemize, there are a lot of changes in this calculation for 2018. The total state income, sales, and property tax deduction is capped at $10,000 for 2018. There is no longer any deduction for miscellaneous itemized deductions, including investment expenses and unreimbursed employee expenses. There are some changes to the mortgage interest deductions, but only for large loans of “new” money after 2017. Personal casualty and theft losses are eliminated, other than casualty losses in a Federally-declared disaster area.
  4. There is some good news for itemizers. The limitations on itemized deductions for high incomes are eliminated. The medical expense deduction threshold is again 7.5%. Also, the general cash charitable contribution limitation will increase from 50% to 60% of adjusted gross income.
  5. There is no longer a deduction for moving expenses, with the exception of some military moves. Reimbursements for moving expenses by your employer also become taxable. For new divorce or separation agreements after 2018, alimony is no longer taxable to the recipient or deductible to the payer.
  6. There is more good news on other types of tax rates. AMT exemption amounts were increased so fewer individuals should fall into this tax structure. Long-term capital gain rates stay at 0%, 15% or 20%, with inflationary changes to the income brackets. Because the capital gain brackets are based on prior law brackets, you will hit the 20% rate before you hit the top 2018 income tax bracket. Kiddie tax rates are now based on the brackets applicable to trusts rather than on the parent’s tax bracket.
  7. Related to Obamacare, the individual mandate is repealed, but not until 2019. The additional 0.9% Medicare withholding on high income wage earners and the 3.8% Net investment income tax remain.
  8. If you have your own business, rental property, or flow through income (such as from an LLC, partnership, or S corporation) you may be eligible for qualified business income deduction of 20% from your taxable income. This section of the new law is very complicated, with exceptions for those in service or consulting fields. The deduction is also subject to limitations based on the business’s W-2 wages or investment in fixed assets.
  9. The new tax act doubles the base estate and gift tax exemption. The amount is inflation adjusted and will be approximately $11.2 million per individual in 2018.
  10. If you receive W-2 wages, the IRS has updated the 2018 withholding tables to take into consideration the new rules. New tables must be used no later than February 15 and you will likely see an increase in net pay. However, with all of the new rules, you cannot easily determine the net impact to your specific situation. Please contact our office for an individual review of how the changes will impact you and if any adjustments are needed to your 2018 withholdings or estimated tax payments.