Donovan, Klimczak & Company CPAs

Tax Cuts and Jobs Act of 2017

The following is a summary of the major changes for individuals and businesses under the Tax Cuts and Jobs Act, which Congress passed on December 20, 2017 and which President Trump is expected to sign shortly. Most of these changes are effective for 2018 and forward.

Changes to the Individual Income Tax

  • Lowers most individual income tax rates, including the top marginal rate from 39.6 percent to 37 percent. Retains the current seven-bracket structure, but bracket widths are modified. (Table 1 and Table 2 below)

Tax Brackets for Ordinary Income Under Current Law and the Tax Cuts and Jobs Act (2018 Tax Year)

Single Filer
Current Law Tax Cuts and Jobs Act
10% $0-$9,525 10% $0-$9,525
15%$9,525-$38,700        12%   $9,525-$38,700
25%     $38,700-$93,700      22%   $38,700-$82,500
28%     $93,700-$195,450    24%   $82,500-$157,500
33%     $195,450-$424,950  32%   $157,500-$200,000
35%     $424,950-$426,700  35%   $200,000-$500,000
39.6%  $426,700+                37%   $500,000+

Tax Brackets for Ordinary Income Under Current Law and the Tax Cuts and Jobs Act (2018 Tax Year)

Married Filing Jointly
Current Law                        Tax Cuts and Jobs Act
10%    $0-$19,050        10%      $0-$19,050
15%    $19,050-$77,400       12%   $19,050-$77,400
25%    $77,400-$156,150     22%    $77,400-$165,000
28%    $156,150-$237,950   24%     $165,000-$315,000
33%    $237,950-$424,950   32%     $315,000-$400,000
35%    $424,950-$480,050   35%     $400,000-$600,000
39.6% $480,050+            37%     $600,000+

  • Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (compared to $6,500, $9,550, and $13,000 respectively under current law).
  • Eliminates the personal exemption deduction, merged with a higher standard deduction.
  • Retains the charitable contribution deduction.
  • Limits the state and local tax deduction to a combined $10,000 for income, sales, and property taxes, $5,000 for married filing separately.
  • Expands the child tax credit from $1,000 to $2,000, while increasing the phaseout from $110,000 in current law to $400,000 married couples($200,000 for others). The first $1,400 would be refundable.
  • Effectively repeals the individual mandate penalty for failure to maintain minimum essential healthcare coverage, by lowering the penalty amount to $0, effective January 1, 2019.
  • For home loans beginning after December 15, 2017, home equity loan interest is no longer deductible.
  • For home loans beginning after December 15, 2017, deductible mortgage interest has now been limited to the interest on up to $750.000 principal or $375,000 for married filing separately/single (reduced from $1,000,000 or $500,000 for married filing separately/single).
  • For divorce agreements executed after December 31, 2018, payers will not be allowed to deduct alimony payments and payments will not be included in the taxable income of the payee.
  • Miscellaneous itemized deductions are no longer deductible (previously, were limited to the expenses incurred above 2% of adjusted-gross-income).
  • Qualified moving expenses are no longer deductible (except for the Armed Forces). Qualified expense reimbursements are now considered compensation (except for the Armed Forces).
  • The term "qualified higher education expenses" pertaining to eligible use of funds from a 529 College Savings Account has now been extended to included tuition paid to elementary, private, or religious schools (up to $10,000 per tax year).
  • Exemption has been doubled for estate and gift tax and has been increased to $10 million ($20 million per married couple). The amount is indexed for inflation and is expected to be approximately $11.2 million ($22.4 million per married couple) in 2018.
  • "Kiddie Tax" modified - taxable income of a child attributable to net unearned income is taxed according to the applicable trusts and estates tax bracket.
  • Alternative minimum tax exemption and phase out amounts have increased.
  • Deductions for medical expenses retained and more liberalized for 2017 and 2018 tax years.

Changes to Business Taxes

  • Lowers the corporate income tax rate permanently to a flat 21 percent, starting in 2018.
  • Corporate AMT is repealed, starting in 2018.
  • Establishes a 20 percent deduction of qualified business income from certain pass-through businesses. Specific service industries, such as health, law, and professional services, are excluded. However, joint filers with income below $315,000 and other filers with income below $157,500 can claim the deduction fully on income from service industries. This provision would expire December 31, 2025.
  • Increases the section 179 expensing cap from $500,000 to $1 million. "Qualified real property" has been expanded to include certain depreciable property used predominantly to furnish lodging and to include the following improvements to nonresidential real property: roofs, heating, ventilation, A/C property, fire protection, and security systems.
  • 100% First year bonus depreciation is allowed for qualified property placed in service after September 27, 2017 and before January 1, 2023. The additional first year depreciation deduction is allowed for both new and used property.
  • Luxury automobile depreciation limits increased. For luxury vehicles placed in service after December 31, 2017, the maximum amount of allowable depreciation is increased to $10,000 for the year its placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for all subsequent years in the recovery period.
  • Eliminates net operating loss carrybacks and limits carryforwards to 80 percent of taxable income.
  • Domestic Production Activities Deduction (DPAD) is repealed.
  • Entertainment expenses incurred after December 31, 2107 are not deductible, meals are still deductible at 50%.
  • Cash method of accounting may be used by taxpayers that do not exceed $25 million gross receipts (increased from $5 million) regardless of whether the purchase, production, or sale of merchandise is an income-producing factor.
  • Deferral of gain on like-kind exchanges is modified to allow deferral only with respect to real property that is not held primarily for sale.
  • Producers or re-sellers with less than $25 million in gross receipts are exempt from uniform capitalization (UNICAP) rules beginning in tax years after December 31, 2017.  

Please contact us us if you have any questions.

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