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Changes to Individual Tax Brackets

Tax Brackets for Ordinary Income Under 1986 Tax Law  (until 2017) and the Tax Cuts and Jobs Act (2018)

                                        Single Filer

           2017                                         2018 (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+


                        Married Filing Jointly


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

39.60%    $480,050+                              37%        $600,000+

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2018 Tax Law Changes


1. Higher standard deduction
Beginning with the 2018 tax year, the standard deduction would nearly double to $12,000 for single filers and $24,000 for married couples filing jointly. It was previously $6,300 and $12,600 for singles and married couples filing jointly, respectively.


2. No more personal exemption
The bill eliminated the personal exemption, which is currently an additional $4,150 deduction (in 2018) for every taxpayer and dependent. 


3. Lower marginal tax rates
Slightly lower tax brackets though there are some whose brackets actually increases per the comparison charts above.


4. No more marriage penalty (for middle-class households)
In the chart, notice that for the first five marginal tax brackets, the income ranges for single filers are exactly half of those for married couples. This helps to eliminate the marriage penalty for most households.


5. Higher child tax credit
The child tax credit  doubled from $1,000 to $2,000 for each child up to 16 years old, and $1,400 of this would be refundable. Furthermore, the income thresholds where the credit phases out would get far more generous.


6. The SALT deduction stays
The deduction for state and local taxes, also known as the SALT deduction, remains but with a cap of $10,000 per return. 


7. The medical expense deduction would get larger
Medical expense deduction kicks in at 7.5% of AGI for all taxpayers, compared to 10% in the prior years.


8. Mortgage interest is still deductible, with a lower cap
The mortgage interest deduction remains, but will now apply to as much as $750,000 in mortgage principal, down from $1 million under current law. However, existing mortgages are grandfathered in.


9. Many deductions are going away
Some other deductions remain, such as the itemized deduction for charitable contributions and the above-the-line deductions for student loan interest and educator classroom expenses. However, many deductions are eliminated under the bill. Everything that falls under the category of "miscellaneous itemized deductions" is going away. This includes things like unreimbursed employee expenses and tax preparation costs.


10. No more individual mandate
The Tax Cuts and Jobs Act will got rid of the individual mandate -- that is, the law that says that everyone needs to buy health insurance or pay a penalty. In other words, beginning in 2018, you'll be able to choose not to buy insurance and not worry about paying a penalty.


11. 529 plans will be more flexible
The bill expanded the acceptable use of 529 college savings plans to include as much as $10,000 per year for secondary and/or elementary school expenses (including home-school costs). Currently, funds in these plans are only available for post-secondary expenses.


12. Small-business owners get a break
The bill would allow a 20% deduction for pass-through entities such as LLCs, S Corporations, and sole proprietorships, after which they would be taxed at their individual tax rates. For example, if you operate an LLC and earn $100,000 in profit in 2018, you'll be able to deduct $20,000 before the income tax rates in the chart above would be applied.


13. Higher AMT exemptions
The alternative minimum tax, or AMT, would remain under the conference agreement. However, the exemptions will be increased significantly in order to make the tax better serve its intended function -- ensure that the wealthy pay at least a minimum amount of tax, not potentially raise taxes on middle-class Americans.


14. Higher estate tax exemption
The bill doubles the lifetime estate tax exemption amount to $11.2 million per individual ($22.4 million per married couple), which will make the 40% tax apply to even fewer houses than it does now.


These aren't permanent changes

As a final point, most of the provisions in the bill expire at the end of 2025, which was necessary to keep the bill from adding more than $1.5 trillion to the deficit. Congress could certainly choose to extend them before they run out, but it's important to be aware that these aren't permanent tax changes.


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Source: The Tax Foundation


Changes to Business Taxes

  • Lowers the corporate income tax rate permanently to 21 percent, 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.
  • Allows full and immediate expensing of short-lived capital investments for five years. Increases the section 179 expensing cap from $500,000 to $1 million.
  • Limits the deductibility of net interest expense to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter.
  • Eliminates net operating loss carrybacks and limits carryforwards to 80 percent of taxable income.
  • Eliminates the domestic production activities deduction (section 199) and modifies other provisions, such as the orphan drug credit and the rehabilitation credit.
  • Enacts deemed repatriation of currently deferred foreign profits, at a rate of 15.5 percent for cash and cash-equivalent profits and 8 percent for reinvested foreign earnings.
  • Moves to a territorial system with base erosion rules.
  • Eliminates the corporate alternative minimum tax.
Other Changes
  • Doubles the estate tax exemption from $5.6 million to $11.2 million, which expires on December 31, 2025. The exemption will increase with inflation.