Individual Changes in the
"Tax Cuts and Jobs Act"
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This article describes the changes enacted into law on December 22, 2017 by President Trump, under the tax bill known informally as the "Tax Cuts and Jobs Act" (H.R.1) that impacts individuals, including, new rates and brackets, the increased standard deduction, the elimination of personal exemptions and certain specific itemized deductions.
New Income Tax Rates & Brackets
To determine one's regular tax liability, an individual uses the appropriate tax rate schedule. The Internal Revenue Code provides four tax rate schedules for individuals based upon filing status - that is, single, married filing jointly/surviving spouse, married filing separately, and head of household - each of which is further divided into income ranges which are taxed at progressively higher marginal tax rates as one's income increases.
The following tables set forth the Old 2017 and new income tax rates and brackets, effective January 1, 2018:
Single
2017 Federal Income Tax
Rates & Brackets are as follows:
Up to $9,325
10%
$9,326 to $37,950
15%
$37,951 to $91,900
25%
$91,901 to $191,650
28%
$191,651, to $416,700
33%
$416,701 to $418,400
35%
Over $418,400
39.6%
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2018 New Income Tax
Rates & Brackets are as follows:
Up to $9,525
10%
$9,526 to $38,700
12%
$38,701 to $82,500
22%
$82,501 to $157,500
24%
$157,501, to $200,000
32%
$200,001 to $500,000
35%
Over $500,000
37%
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Married Filing Jointly/Surviving Spouse
2017 Federal Income Tax
Rates & Brackets are as follows:
$0 to $18,650
10%
$18,651 to $75,900
15%
$75,901 to $153,100
25%
$153,501 to $233,350
28%
$233,351, to $416,700
33%
$416,701 to $470,700
35%
$470,701
39.6%
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2018 New Income Tax
Rates & Brackets are as follows:
$0 to $19,050
10%
$19,051 to $77,400
12%
$77,401 to $165,000
22%
$165,001 to $315,000
24%
$315,001, to $400,000
32%
$400,001 to $600,000
35%
$600,001
37%
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Married Filing Separately
2017 Federal Income Tax
Rates & Brackets are as follows:
Up to $9,325
10%
$9,326 to $37,950
15%
$37,951 to $76,550
25%
$76,501 to $116,675
28%
$116,676, to $208,350
33%
$208,351 to $235,350
35%
Over $235,350
39.6%
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2018 New Income Tax
Rates & Brackets are as follows:
Up to $9,525
10%
$9,526 to $38,700
12%
$38,701 to $82,500
22%
$82,501 to $157,500
24%
$157,501, to $200,000
32%
$200,001 to $300,000
35%
Over $300,001
37%
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Head of Household
2017 Federal Income Tax
Rates & Brackets are as follows:
Up to $13,350
10%
$13,351 to $50,800
15%
$50,801 to $131,200
25%
$131,201 to $212,500
28%
$212,501, to $416,700
33%
$416,701 to $444,500
35%
Over $444,501
39.6%
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2018 New Income Tax
Rates & Brackets are as follows:
Up to $13,600
10%
$13,601 to $51,800
12%
$51,801 to $82,500
22%
$82,501 to $157,500
24%
$157,501, to $200,000
32%
$200,001 to $500,000
35%
Over $500,001
37%
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Standard Deduction
In addition to a lower effective rate at many income brackets, under the new law, the standard deduction has been increased significantly:
Single Taxpayers $6,350 (2017) $12,000 (2018)
Head of Household $9,350 (2017) $18,000 (2018)
Married Taxpayers (filing jointly) $12,700 (2017) $24,000 (2018)
Other Itemized Deductions and Tax Rules Impacting Individuals
Personal Exemptions
OLD LAW
Every individual receives a personal exemption of $4,050 in 2017. A married couple would claim two personal exemptions of $8,100 in 2017 and a typical family of four personal exemptions of $16,200 in 2017.
NEW LAW
Personal exemptions are repealed, thus, eliminating the ability for individuals to obtain additional tax deductions for those with many dependents. The New Law became effective on January 1, 2018 and will expire on December 31, 2025.
Property Taxes and State and Local Income Tax Deduction
OLD LAW
State and local income or sales taxes plus property taxes are deductible.
NEW LAW
The itemized deduction for state and local taxes is limited to $10,000 annually. The limitation does not apply to state and local taxes for trade, business or production of income activities.
Note that taxpayers may aggregate between income taxes, property taxes and sales taxes (that is the deduction is not limited to one or the other). This deduction expires on December 31,2025.
Home Mortgage Interest Deduction
OLD LAW
Interest up to $1 million of mortgage debt on a principal residence and a second residence is deductible.
NEW LAW
Interest up to $750,000 of mortgage debt on a principal residence and a second residence is deductible. Grandfather's interest on up to $1 million of acquisition debt for loans prior to December 15, 2017. This deduction expires on December 31, 2025.
Alimony Deduction
OLD LAW
Alimony and separate maintenance payments are deductible by the payor spouse and included in income by the recipient spouse.
NEW LAW
Alimony and separate maintenance payments are not deductible by the payor spouse and is not considered income to the recipient spouse. This is effective for divorce and separation agreements signed or modified after December 31, 2018. There is no expiration date.
Education Expense
OLD LAW
529 plans are designed for saving for qualified higher education expenses.
NEW LAW
529 plans are expanded to provide for Kindergarten through 12th grade education expenses, with a $10,000 per Beneficiary annual limit on these distributions. This is effective January 1, 2018 and there is no expiration date.
Medical Expense Deduction
OLD LAW
Medical expenses are deductible, but only if they exceed 10% of adjusted gross income.
NEW LAW
For 2017 and 2018, medical expenses are deductible if they exceed 7.5% of adjusted gross income. In 2019, the threshold increases to 10% of adjusted gross income.
Charitable Contributions Deduction
OLD LAW
Cash contributions to public charities are deductible up to 50% of adjusted gross income.
NEW LAW
Cash contributions to public charities are deductible to 60% of adjusted gross income. This deduction expires on December 31, 2025.
Personal Casualty and Theft Losses Deduction
OLD LAW
Casualty and theft losses were allowed to the extent that each loss exceeded $100 and the sum of all losses for the year exceeded 10% of the taxpayer's adjusted gross income.
NEW LAW
Personal casualty losses are suspended through 2025, except casualty losses attributable to a disaster declared by the President under Section 401 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act. A casualty loss is a loss due to a sudden, unexpected and unusual event such as a fire, flood, earthquake or car accident.
Home Sales Exclusion
OLD LAW
When a taxpayer owns and uses a home as his principal residence for 2 out of the 5 years prior to its sale, the taxpayer can exclude up to $250,000 ($500,000 for a married couple) of profit from the sale.
NEW LAW
This exclusion is retained.
Entertainment Expense Deduction
OLD LAW
Entertainment expenses or meals are directly related to (or associated with) the active conduct of its trade or business, generally may deduct 50% of the expense.
NEW LAW
No deduction is allowed for (i) an activity generally considered to be entertainment, amusement or recreation; (ii) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes; or (iii) a facility or portion thereof used in connection with items (i) and (ii) above.
Employers may still deduct 50% of the food and beverage expenses associated with operating their trade or business such as meals consumed for employees on work travel.
Also disallows a deduction for expenses associated with providing any qualified transportation fringe to the taxpayer's employees.
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Both individuals and businesses should evaluate their current planning strategies to maximize on certain potential tax benefits that can be derived under the new law prior to their expiration on December 31, 2025.
Friedman & Feiger, LLP is prepared to work with our clients in connection with their personal and business tax planning strategies. Please call Robert E. Feiger at, 972-450-7350.
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5301 Spring Valley Rd.
Suite 200
Dallas, Texas 75254
972-788-1400
www.fflawoffice.com
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Robert E. Feiger
Robert E. Feiger practices in the areas of taxation, business law, estate and asset preservation planning, probate and estate administration and securities. He received a B.S.B.A. with final honors from Washington University in St. Louis, Missouri in 1971, where he became a member of Beta Gamma Sigma and Omicron Delta Kappa, and his J.D. and L.L.M. in Taxation from Southern Methodist University Dedman School of Law in a 1974 and 1995, respectively.
While at Southern Methodist University, Mr. Feiger was on the staff of the Southwestern Law Journal. He served as Staff Attorney for the United States Securities & Exchange Commission in the Division of Enforcement in Washington, D.C., 1974 through 1977, and as an Assistant General Counsel for Betz Laboratories, Inc., a publicly-held company, in Philadelphia, Pennsylvania, 1977 through 1979. He currently serves as a member to the Advisory Council of The Dallas Foundation. He is admitted to the State Bar of Texas, and is also a member of the Tax Section of the State Bar of Texas.
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