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Dollars & Sense: Tax Cuts & Jobs Act of 2017: What Taxpayers Need to Know

Presented by Roberta L. Nestor

On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (the act or TCJA).  The legislation makes significant changes to the Internal Revenue Code (IRC), including individual, corporate, and gift and estate taxation.

Individual Income Tax Changes

Although the act maintains seven tax brackets, these brackets will change.

New Tax Rates Under The TCJA

Tax Rate Single Married/Jointly Head of Household Married/Separately
10% $0−$9,525 $0−$19,050 $0−$13,600 $0−$9,525
12% $9,525−$38,700 $19,050−$77,400 $13,600−$51,800 $9,525−$38,700
22% $38,700−$82,500 $77,400−$165,000 $51,800−$82,500 $38,700−$82,500
24% $82,500−$157,500 $165,000−$315,000 $82,500−$157,500 $82,500−$157,500
32% $157,500−$200,000 $315,000−$400,000 $157,500−$200,000 $157,500−$200,000
35% $200,000−$500,000 $400,000−$600,000 $200,000−$500,000 $200,000−$300,000
37% Over $500,000 Over $600,000 Over $500,000 Over $300,000

In addition to the changes made to the tax brackets, many exemptions and deductions for individual income tax will be repealed or modified.

  • The personal exemption of $4,150 per taxpayer and dependent will be eliminated.
  • The standard deduction for individuals will go from $6,500 for individuals and $13,000 for married couples to $12,000 for individual taxpayers and $24,000 for married couples who file jointly. This near doubling of the standard deduction will result in more taxpayers taking it instead of itemizing.
  • The legislation also places limits on several itemized deductions, listed in the table below.

Specific Itemized Deductions That Will Be Eliminated Or Modified

2017 Tax Year As of 2018
State and local income tax,
property tax
State and local income and property tax fully deductible All deductions for state and local income tax, as well as property tax, limited to a maximum of $10,000
Mortgage interest deduction Interest payments on mortgage debt deductible up to $1 million in indebtedness Debt limitation lowered to $750,000
Medical expenses Deductible to the extent they exceed 10% of adjusted gross income (AGI) Deductible to the extent they exceed 7.5% of AGI
Moving expenses Personal moving expenses deductible, including employer-sponsored reimbursements No longer deductible at the personal or employer level, except for military
Miscellaneous itemized deductions Certain miscellaneous itemized deductions may be taken to the extent they exceed 2% of taxpayer’s AGI Miscellaneous itemized deductions repealed; no longer deductible
Income phase-out for itemizing deductions Itemized deductions limited by phase-out beginning at $266,700 (single) and $320,000 (married) No phase-out for itemizing deductions

Cash donations to charity.  Under 2017 law, gifts of cash to charity offer a taxpayer the ability to deduct the contribution, up to 50 percent of AGI.  The TCJA will increase the limitation to 60 percent of the taxpayer’s AGI.

Education planning.  The TCJA includes an expansion of 529 savings plans that will allow families to save for K−12 expenses, in addition to college expenses.  529 plans will also be able to use qualified distributions for elementary and secondary school expenses, up to $10,000 per year, per student.

Affordable Care Act individual mandate.  The TCJA will eliminate the penalty imposed under the IRC for individuals who do not maintain individual health care coverage.

Individual alternative minimum tax (AMT).  The individual AMT exemption amount will increase to $70,300 for individual filers and $109,400 for joint filers.  The phase-out for the AMT exemption will increase to $500,000 for individuals and $1 million for married couples.  With enactment of the new act, fewer Americans will be subject to the AMT.

Assess where you are headed.  In light of these sweeping changes, 2018 should result in a complete review of you financial snapshots.  An overall review of income, assets, and balance sheet is important in order to get a clear picture of how the significant changes to individual income taxation will affect you and their families.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice.  Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Roberta L. Nestor is a financial advisor located at 491 New Haven Avenue, Milford CT  06460, she offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.  Roberta can be reached at (203) 876-8066 or at Roberta@nestorfinancial.com.

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