The 2017 Tax Cuts and Jobs Act is the most extensive update to the U.S. tax code in more than 30 years. The bill makes major changes to the tax code for individuals and businesses and provides sweeping tax changes along all social and economic lines.
Will the 2017 Tax Cuts and Job Act affect my 2017 income taxes?
No, the new tax bill focuses on changes for tax years beginning January 1, 2018, so we will see most changes on our 2018 tax returns, which aren’t due until April 15, 2019.
How does it impact my personal income tax?
The new bill keeps the seven different tax brackets, but does reduce most of the brackets; 10%, 12%, 22%, 24%, 32%, 35% and 37% (current rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%). Many of the lower tax brackets are widened, allowing lower taxes for all income levels. Small business owners who are sole proprietors or whose business income is taxed on their individual return will get a break due to the new, lower business tax rate of 21%.
Updates made to deductions?
The standard deduction increases substantially. Itemized deductions are still available, but only the following, and there are new limits or thresholds:
- Mortgage interest paid on an original loan for up to $750,000
- State and local income, property, or sales tax up to a total of $10,000
- The medical expenses floor, or amount subtracted from the total expenses before deduction, has been reduced to 7.5% of adjusted gross income (AGI) for all taxpayers
- Charitable contributions – the new limit is 60% of AGI. Any charitable contributions over this must be carried forward and added to the next year
- Casualty losses - but only for Federally Declared Disaster Areas. Theft losses are no longer allowed.
How does the new bill affect the child tax credit?
The Child Tax Credit and the Additional Child Tax Credit are larger. The total Child Tax Credit for each qualifying child under age 17 is now $2,000 per child, in addition up to $1,400 of the credit for each child is refundable. The credit is available on incomes up to $400,000 if filing a joint return and $200,000 for all others. More refund for the hardworking low-income taxpayers and more deduction for the middle-income taxpayers.
If I don’t have health insurance, will I still be penalized?
The penalty for not having health insurance remains in place for the 2017 and 2018 tax years. The penalty has been repealed beginning January 1, 2019.
Have personal exemptions been eliminated?
Under the new tax laws there are no personal or dependent exemptions.
What about the alternative minimum tax rate (AMT)?
The AMT is still here, but with a higher exemption of $109,400 if you are Married Filing Jointly (up from $84,500), $70,300 for Head of Household (up from $54,300), and $54,700 if you are Married Filing Separately (up from $42,250). The exemption phase out threshold is increased to $1M for MFJ taxpayers and $500,000 for all others.
How are pass-through provisions affected?
Basically, deduct 20% of business income as deduction, and the remainder taxed at new rates. There is some other great stuff for “immediate expensing” of business assets, and small businesses are a big winner!
To keep the cost of the bill within Senate budget rules, all of the changes affecting individuals will expire after 2025. At that time, if no future Congress acts to extend, the individual tax provisions would sunset, and the tax law would revert to its current state.
What are the lesser-known impacts of the legislation?
- There’s no more tax deduction for amounts paid in exchange for college athletic event seating. You can’t pay to get those college tickets and deduct them. Better get those payments in before December 31!
- S corporations will be required to report all profits as salary, and they have to pay FICA and Medicare tax on the profits, regardless of whether they distribute those profits.
- There are no more business expense deductions. If you have been a remote employee who deducted a home office, travel, or other items, you’ve lost a large deduction.
- Casualty losses are no longer allowed unless the loss is from a federally declared disaster area.
- Losses associated from theft are not allowed at all.