Tax Cuts and Jobs Act
Major Individual Provisions
The Tax Cuts and Jobs Act that was signed into law last month makes numerous changes to the way individuals are taxed. Barring any further action by Congress, these changes expire after 2025. The following is an overview of the main changes that may affect you starting with the 2018 tax year.

Income Tax Rates and Brackets
Individual income tax rates are lowered for each tax bracket. Also, the Act adjusts the income thresholds of each bracket so that more taxpayers will fall into a lower tax bracket. The top marginal tax rate used to be 39.6% and now it is 37%. 

Standard Deduction Increased 
In the past if you didn’t have enough deductions to itemize on Schedule A, you would take the standard deduction. Now, the standard deduction has increased and there are more limits on your itemized deductions. This will cause more taxpayers to simply take the standard deduction which has almost doubled under the new law.  

Personal Exemption Eliminated
Under the old law, you were allowed an exemption amount for you, your spouse, and your dependents. This total was deducted to get to taxable income. With the new law, this deduction is eliminated completely.

AMT Exemption and Phase Out Level
The AMT exemption amount was increased to $109,400 for joint filers. Also, the phase out threshold was increased to $1,000,000 for joint filers. This means less taxpayers will be subject to AMT than with the previous law.

Itemized Deductions
The new law eliminates the overall limitation on itemized deductions for higher income taxpayers. It also limits a number of itemized deductions including but not limited to:

  • State and Local Tax Deductions: Deductions for state and local income and property taxes are capped at $10,000 in total.
  • Mortgage Interest: For new loans, you can deduct interest on up to $750,000 of mortgage debt which was reduced from $1,000,000 (married filing joint taxpayers). Also, the deduction for home equity debt interest is eliminated with the new bill. 
  • Medical Expenses: Qualified medical expenses have to exceed 7.5% of adjusted gross income to be deductible on Schedule A. This is reduced from the 10% it has been with the old law.

Pass-Through Business Income
Individuals with qualified business income from a partnership, S corporation, or sole proprietorship will be allowed to deduct 20% from their business income. This is subject to limits and does not include income from certain types of businesses. 

Estate Tax
The threshold for a taxable estate is doubled so that fewer estates will be subject to tax.

Child Tax Credit Increased
The child tax credit amount per child (under 17) is doubled to $2,000. Under old law this credit would start being phased out if a married couple earned more than $110,000 but the new law raises this to $400,000 thus making the credit available to more taxpayers. 

Of course, these items are not an all-encompassing list of all the changes made under the new tax law. If you wish to discuss how these or the many other changes in the Act could affect your particular tax situation please contact our professionals at 859-331-1717.