Company News

The Tax Cuts and Jobs Act: How It will Impact Individuals and Businesses

Personal Finance

On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act (TCJA) of 2017 into law. Below is a table that provides a brief overview of some of the key highlights of the law for individuals and businesses and how they might affect you.

Individuals
Individual Tax Rates

Pre-reform Tax Law (2017)

Rate

Single

Married

10%

$0–$9,525

$0–$19,050

15%

$9,525–$38,700

$19,050–$77,400

25%

$38,700–$93,700

$77,400–$156,150

28%

$93,700–$195,450

$156,150–$237,950

33%

$195,450–$424,950

$237,950–$424,950

35%

$424,950–$426,700

$424,950–$480,050

39.6%

$426,700 and up

$480,050 and up

  • Inflation adjustments are faster over time.

Tax Reform Changes (2018)

 

Rate

Single

Married

10%

$0–$9,525

$0–$19,050

12%

$9,525–$38,700

$19,050–$77,400

22%

$38,700–$82,500

$77,400–$165,000

24%

$82,500–$157,500

$165,000–$315,000

32%

$157,500–$200,000

$315,000–$400,000

35%

$200,000–$500,000

$400,000–$600,000

37%

$500,000 and up

$600,000 and up

  1. Most individual income taxes are reduced.
  2. Inflation adjustments are slower over time. This increases the effective tax as people move into higher tax brackets more quickly as their income increases.
  3. Reverts to 2017 law after 2025.
Standard Deductions  and Personal Exemptions

Pre-reform Tax Law (2017)

  1. Standard deduction of $6,350 for singles, $12,700 for married couples.
  2. Personal exemptions of $4,150 per taxpayer and dependent, phased out at higher incomes.

Tax Reform Changes (2018)

  1. Standard deduction of $12,000 for singles, $24,000 for married couples (Expires after 2025).
  2. Personal exemptions are eliminated at all income levels.
Child Tax Credit

Pre-reform Tax Law (2017)

  1. Up to $1,000, phased out at higher incomes

Tax Reform Changes (2018)

  1. Up to $2,000, phased out at significantly higher incomes. Also, $500 for other dependents (Expires after 2025).
State and Local Tax Deduction

Pre-reform Tax Law (2017)

  1. Deductions allowed for state/local income tax, sales tax and property taxes, subject to PEASE limitation.

Tax Reform Changes (2018)

  1. The deduction for state and local income tax, sales tax, and property taxes (“SALT deduction”) will be capped at $10,000
Healthcare Deductions

Pre-reform Tax Law (2017)

  1. Deduction for eligible expenses exceeding 10% of adjusted gross income (AGI).

Tax Reform Changes (2018)

  1. Deduction for eligible expenses exceeding 7.5% of AGI for 2017 and 2018. (Reverts to 10% for 2019 and thereafter).
  2. Affordable Care Act Mandate for healthcare insurance is repealed. (Expires after 2025).
Education Deductions and Credits

Pre-reform Tax Law (2017)

  1. Distributions used for qualified higher education expenses (college) not includible in income. Expenses for  K–12 education do not qualify.

Tax Reform Changes (2018)

  1. Allows 529 plans to be used for elementary and secondary education tuition expenses, up to
    $10,000 per beneficiary per year.
Casualty Loss Deduction

Pre-reform Tax Law (2017)

  1. Casualty losses are deductible.

Tax Reform Changes (2018)

  1. Casualty losses are only deductible if they occur in a disaster that is declared by the president.
Alimony Deduction

Pre-reform Tax Law (2017)

  1. Payer can deduct alimony paid to an ex-spouse.
  2. Alimony payments are included in the recipient’s gross income.

Tax Reform Changes (2018)

  1. Alimony paid to an ex-spouse is no longer deductible.
  2. Alimony payments are no longer to be included in the recipient’s gross income.
  3. This shifts the tax burden from recipient to payer.
Moving Expense Deduction

Pre-reform Tax Law (2017)

  1. Allowed under the pre-reform tax law.

Tax Reform Changes (2018)

  1. Employment related moving expenses are no longer deductible.
Tax Preparation Deduction

Pre-reform Tax Law (2017)

  1. Allowed under the pre-reform tax law.

Tax Reform Changes (2018)

  1. Expenses related to tax preparation and filing will no longer be deductible.
Alternative Minimum Tax

Pre-reform Tax Law (2017)

  1. A parallel tax system to the regular tax system with its own definition of taxable income, exemptions, and tax rates. Taxpayers must compute their income for purposes of both the regular income tax and the AMT.
  2. The AMT exemption level is $84,500 for couples and $54,300 for singles.

Tax Reform Changes (2018)

  1. Repeals corporate AMT.
  2. Retains individual AMT with higher exemption levels ($109,400 for couples, $70,300 for singles) and phaseout thresholds
  3. Intended to reduce the number of households affected. (Expires after 2025)
Roth Conversions

Pre-reform Tax Law (2017)

  1. Allowed to recharacterize (undo or reverse) a conversion to a Roth IRA.

Tax Reform Changes (2018)

  1. Repeals rules that allow individuals to recharacterize Roth IRA conversions.
Estate Tax

Pre-reform Tax Law (2017)

  1. Assets up to $5.49 million (individual) and $10.98 million (married couple) are exempt, indexed for inflation.

Tax Reform Changes (2018)

  1. Exemptions are doubled to  $11.2 million (individual) and $22.4 million (married couple). (Expires after 2025).

 

Businesses
Corporate Tax Rate

Pre-reform Tax Law (2017)

  1. 35% maximum rate.

Tax Reform Changes (2018)

  1. 21% flat rate.
Corporate Taxes

Pre-reform Tax Law (2017)

  1. Global Tax System (35% less credits for taxes paid in a foreign country)
  2. Carried interest deducted at capital gains rate for investments held over a year.
  3. Net Operating Losses (NOLs)

Tax Reform Changes (2018)

  1. Carried interest deduction now requires a 3 year holding period.
  2. Corporate AMT eliminated.
  3. One time repatriation tax of 8% on illiquid assets and 15.5% for cash.
  4. Net Operating Losses (NOLs) limited to 90% of current year profit.
  5. Qualified equipment can be fully expensed in the year of purchase and placed in service.
Business Pass-Through Entities

Pre-reform Tax Law (2017)

  1. Income received from partnerships, S corporations, or sole proprietorships is passed-through to the owner’s individual tax returns, where it is taxed as ordinary income

Tax Reform Changes (2018)

  1. There is a new 20% deduction for qualified business income from a partnership, S corporation, or sole proprietorship.
  2. Subject to complicated rules and begins to phase out at $157,500 for single filers and $315,000 for joint filers.
All written content on this site is for information purposes only. Opinions expressed herein are solely those of QMI Capital Management LLC unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.