Tax Cuts and Jobs Act (TCJA) of 2018

Under the new law, the individual tax brackets are set at 10%, 12%, 22%, 24%, 32%, 35% and 37%. 

Personal Exemptions and Standard Deductions

  • The new law eliminates deductions for personal exemptions while increasing standard deductions to $12,000 for single filers and $24,000 for married, joint filers. Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.

  • TCJA creates temporary credit for non-child dependents: The bill would allow parents to take a $500 credit for each non-child dependent whom they're supporting, such as a child 17 or older, an ailing elderly parent or an adult child with a disability.

The following itemized deductions are being modified or eliminated:

  • The deduction for state and local income (The Salt Tax), sales and property taxes is capped at $10,000.​

  • The deduction for mortgage interest is reduced, and only allowable on up to $750,000 of acquisition indebtedness down from $1 million.   Homeowners who already have a mortgage would be unaffected by the change (mortgages incurred on or before Dec. 15, 2017, are grandfathered in and thus still allowed $1 million of acquisition indebtedness).

  • The bill would no longer allow a deduction for the interest on home equity loans. Currently that is allowed on loans up to $100,000.

  • The home equity loan interest deduction is repealed.

  • Taxpayers will be allowed to deduct medical expenses if they exceed 7.5% of adjusted gross income (instead of 10%) for tax years 2017 and 2018.

  • The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.

  • Preserves smaller but popular tax breaks such as the deductions for medical expenses, student loan interest and classroom supplies bought with a teacher's own money.

Charitable Income Tax Deductions

  • The new law increases the charitable contribution limit to 60% of AGI for cash contributions (up from 50% now), while keeping the limit on contributions of appreciated property at 30% of AGI.

Individual Alternative Minimum Tax (AMT)

  • The AMT exemption is increased to $70,300 for single filers and $109,400 for married joint filers. The thresholds for the phase-out of the AMT exemptions are increased to $500,000 for single filers and $1 million for married joint filers.

Estate Tax

  • TCJA does not repeal the estate tax, however it doubles the estate, gift and GST tax exemption amounts from the original $5 million to $10 million.

Other Tax Provisions

TCJA contains many other provisions. The following is a brief summary of some of them most relevant to most people:

  • Full expensing of investments in new depreciable assets made after Sept. 27, 2017, and before Jan. 1, 2023, will be permitted.

  • The limit on section 179 deductions wherein businesses can deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year is increased to $1 million.

  • Deductions for certain fringe benefits, such as business entertainment expenses, have been limited.

  • Net operating loss (NOL) deductions are limited to 80% of pre-NOL taxable income. There is an indefinite NOL carryforward, but no carryback to prior years for most companies.

  • The itemized deduction for personal casualty losses would be restricted to losses incurred in a presidentially declared disaster area. This sunsets after 2025.

  • Tax-preparation fees are no longer deductible. This sunsets after 2025.

  • Except for members of the armed forces, moving expenses are no longer deductible. This sunsets after 2025.

  • Reversing or re-characterizing a Roth IRA is no longer permitted.

  • The penalty for failing to maintain minimum health care coverage is effectively eliminated starting Jan. 1, 2019.

  • The alimony deduction for the payor ex-spouse and the inclusion of alimony in gross income of the recipient ex-spouse is repealed for any divorce or separation instrument executed or modified after Dec. 31, 2018.

What is certain is that in the end whatever is done can be eventually undone when the political climate changes. Most of the provisions affecting individual, as opposed to corporate, taxpayers sunset after 2025, and if the other party is in power at that time, you can most predictably expect the lower tax provisions not to be extended. Accordingly it seems safe to say that none of this is will be “permanent,” as permanent fixes are never permanent so long as future Congresses can make changes.

A Working Woman Income Tax Service has been in business for over 30 years.  I have had many satisfied clients over the years.  My firm is known for giving personal attention and is small enough that I know each client individually and communicate timely on all matters, large or small.

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A Working Woman Income  Tax Service