Tax Cuts and Jobs Act Provisions Impacting Individuals

The House and Senate have voted and passed tax reform legislation, and President Trump has signed into law. Now that tax reform is definite, below we have highlighted some of the major provisions impacting individuals. Read the corporate tax provisions.

Revised 4/9/18

Individual Tax Brackets (Expire after December 31, 2025)

  • 10% for taxable incomes up to $9,525 for individuals and $19,050 for married couples
  • 12% for taxable incomes up to $38,700 for individuals and $77,400 for married couples
  • 22% for taxable incomes up to $82,500 for individuals and $165,000 for married couples
  • 24% for taxable incomes up to $157,500 for individuals and $315,000 for married couples
  • 32% for taxable incomes up to $200,000 for individuals and $400,000 for married couples
  • 35% for taxable incomes up to $500,000 for individuals and $600,000 for married couples
  • 37% for taxable incomes above the 35% threshold for both individuals and married couples

Business Tax Rates

  • Corporate tax rate reduced from 35% to 21%
  • Pass-through companies allowed a 20% deduction on domestic qualifying business income not to exceed 50% of wage income for higher-income taxpayers, but not for specified service businesses, not including architects and engineers and smaller specified service businesses. Alternatively, for the higher income taxpayers, the deduction applies to 25% of wage income plus 2.5% of the unadjusted cost of depreciable tangible assets. Contact an Anders advisor for more information on the many moving parts within this provision

Standard Deduction and Exemptions

  • Raises from $6,350 to $12,000 for individuals
  • Raises from $12,700 to $24,000 for married couples
  • Personal exemptions are eliminated

Itemized Deductions

  • Preserves medical expenses, but most others are repealed. Repeals all 2% floor itemized deductions. Casualty losses only allowed for presidentially declared disasters under section 401
  • Mortgage interest deduction and charitable deduction are preserved, but with slight modifications
  • The limitation on overall itemized deductions allowable is eliminated. There are no longer any phase-outs
  • The limitations on cash contributions to public charities and certain private foundations are increased to 60% of AGI from 50%

Mortgage Interest Deduction

State and Local Tax Deductions

  • Aggregate state real property and income tax (or sales tax) expense deductions for purposes of itemizing will be allowed a cap of $10,000
  • State and Local property taxes paid in carrying on a trade or business continue to be fully deductible

Family and Child Tax Credits

  • A new credit for non-child dependents introduced at $500
  • Child Tax Credit increases to $2,000, with $1,400 of it now being refundable and phasing out at $400,000 of income (MFJ)

Alternative Minimum Tax

  • Individual AMT remains on the books, but with a higher exemption and phase-out amount

Retirement Account Changes

  • Re-characterization from a Roth to traditional IRA contribution is allowed. However, if you convert a traditional to a Roth, you cannot in effect unwind this conversion under the new law

Estate and Gift Tax

  • No repeal
  • Increases exemption for an individual from $5.49 million to $11.18 million, indexed for inflation after 2011. A married individual could effectively transfer $22.36 million as both are allowed this exemption
  • Step-up in basis for property passing to heirs at death remains in place

Other Individual Tax Changes of Note

  • Alimony is no longer deductible by the payor and no longer income to the payee for divorce agreements entered into or modified in 2019 or after
  • Moving expense deductions eliminated
  • Employee unreimbursed business deductions eliminated
  • Many employer-provided benefits to an employee can no longer excluded from income. These include fringe benefits such as employee achievement awards, transportation, commuting and qualified moving expenses

Contact an Anders advisor with questions on how tax reform will affect you or your business. Read the tax reform changes for businesses.