A Guide to the Tax Cuts and Jobs Act Kerber, Eck & Braeckel LLP On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act. It cuts the corporate tax rate from 35 percent to 21 percent beginning in 2018. The top individual tax rate will drop to 37 percent. It cuts income tax rates, doubles the standard deduction, and eliminates personal exemptions. The corporate cuts are permanent, while the individual changes expire at the end of 2025. Here’s a summary of how to Act changes income taxes, deductions for child and elder care, and business taxes. Income Taxes The Act keeps the seven income tax brackets but lowers tax rates. Employees will see changes reflected in their withholding in February 2018 paychecks. These rates revert to the 2017 rates in 2026. The Act creates the following chart. The income levels will rise each year with inflation. But they will rise more slowly than in the past because the Act uses the chained consumer price index. Over time, that will move more people into higher tax brackets. Income Tax Rate 2017 2018 - 2025 Single Married - Joint 10% 10% $0 - $9,525 $0 - $19,050 15% 12% 25% 28% 33% 22% 24% 32% $9,525 - $38,700 $38,700 - $82,500 $82,500 - $157,500 $157,500 - $200,000 33% - 35% 35% $200,000 - $500,000 39.6% $19,050 - $77,400 $77,400 - $165,000 $165,000 - $315,000 $315,000 - $400,000 $400,000 - $600,000 37% $500,000 + $600,000 + It doubles the standard deduction. A single filer’s deduction increases from $6,350 to $12,000. The deduction for Married and Join Filers increases from $12,700 to $24,000. It reverts back to the current level in 2026. As a result, it is estimated that 94 percent of taxpayers will take the standard deduction. 6 Taxable Income Levels for Those Filing As: It eliminates personal exemptions. Before the Act, taxpayers subtracted $4,150 from income for each person claimed on your tax return. The Act eliminates most itemized deductions. That includes moving expenses, except for members of the military. Those paying alimony can no longer deduct it, while those receiving it no longer are taxed on the receipt. This change begins in 2019 for divorces signed in 2018. Examples include unreimbursed business expenses for employees, home-equity loan interest, and your tax preparer fees, home office, investment expenses and advisor fees. It keeps deductions for charitable contributions, retirement savings, and student loan interest. It limits the deduction on mortgage interest to the first $750,000 of the loan. Interest on home equity lines of credit can no longer be deducted. Current mortgageholders aren’t affected. Taxpayers can deduct up to a maximum of $10,000 in state and local taxes, including sales and real estate taxes on your personal residence. The Act expands the deduction for medical expenses for 2017 and 2018. It allows all taxpayers to deduct medical expenses that are 7.5 percent or more of income. Before the bill, the cutoff was 10 percent for those born after 1952. Seniors already had the 7.5 percent cutoff. At least 8.8 million people used the deduction in 2015. The Act repeals the Obamacare tax mandate on those without health insurance in 2019. The Act doubles the estate tax exemption to $11.2 million for singles and $22.4 million for couples. It keeps the Alternative Minimum Tax. It increases the exemption from $54,300 to $70,300 for singles and from $84,500 to $109,400 for joint. The exemptions phase out at $500,000 for singles and $1 million for joint.
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