The new Tax Cuts and Job Act reduces income tax rates and modifies credits and deductions for individuals and businesses. For businesses, the most prominent tax changes are a reduction of the top corporate income tax rate from 35% to 21% and repeal of the corporate alternative minimum tax. For individuals, the bill modifies tax rates, tax brackets, and the standard deduction, and repeals personal exemptions. Note that many of these tax changes “sunset” after 2025.

Key Individual Tax Changes:
1. Income Tax brackets. The bill keeps seven personal income tax brackets, lowers the top individual tax rate from 39.6% to 37% and reduces tax rates for most brackets. The bill also doubles the standard deduction but eliminates personal exemptions.
Click here for Tax Brackets Under The New Tax Plan

2. The estate tax exemption doubles to $11,200,000 per individual (up from $5,490,000) and $22,400,000 for married couples (up from $10,980,000) and will increase further with inflation. Sunsets after 2025.

3. The individual alternative minimum tax was preserved but applies only to individuals earning at least $70,300 (up from $50,600) and for married couples earning at least $109,400 (up from $78,750). Sunsets after 2025. Phaseout amounts also have increased.

4. Pass-through tax entities. There is a new 20% deduction for certain qualified business income from pass-through entities such as partnerships, limited liability companies, and S corporation, with some limitations for professional services businesses. Sunsets after 2025.

5. The mortgage interest deduction is capped at mortgage debt at $750,000 for first and second homes (down from $1,100,000). Sunsets after 2025.

6. The state and local tax deduction is capped at $10,000 for property taxes, sales taxes, and income taxes. Prepayment of 2018 taxes in 2017 (the last year of unlimited SALT deductions) is prohibited. Sunsets after 2025.

7. The child tax credit doubles to $2,000 and is refundable up to $1,400. The credit is phased out for individual taxpayers with AGI over $200,000 (up from $75,000) and for all other taxpayers with AGI over $400,000 (up from $110,000). Sunsets after 2025.

8. Medical expenses deduction is retained for medical expenses over 7.5% of AGI (down from 10%, but reverts to 10% in 2019).

9. The individual health insurance mandate. The Affordable Care Act requirement that most Americans have health insurance or pay a penalty was repealed effective in 2019.

10. Students. The new law keeps the student loan deduction and the graduate student tuition waivers.
The Tax Cuts and Jobs Act repeals or modifies many other deductions and credits for individuals and businesses. We hope this summary of the new tax law will help you plan for 2018.

Contact your Stuart & Branigin lawyer with any questions you may have. We look forward to hearing from you!