Individual Tax Summary

Individual Tax Summary
Product of BKMSH
The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Here's a look at some
of the more important elements of the new law that have an impact on individuals. Unless otherwise
noted, the changes are effective for tax years beginning in 2018 through 2025.
Tax Rates
The new law imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%,
35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above
$500,000 for single taxpayers, and $600,000 for married couples filing jointly. The rates applicable to net
capital gains and qualified dividends were not changed. The “kiddie tax” rules were simplified. The net
unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income
rates that apply to trusts and estates. Thus, the child's tax is unaffected by the parent's tax situation or
the unearned income of any siblings.
Standard Deduction
The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of
household, and $12,000 for singles and married taxpayers filing separately. Given these increases,
many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after
2018.
Exemptions
The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no
longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be
adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for
2018.
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New Deduction for “qualified business income.”

Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,”
otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs, and
sole proprietorships. The income must be from a trade or business within the U.S. Investment income
does not qualify, nor do amounts received from an S corporation as reasonable compensation or from a
partnership as a guaranteed payment for services provided to the trade or business.
The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with
taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by
the business and depreciable tangible property used in the business is phased in, and (2) income from
the following trades or businesses is phased out of qualified business income: health, law, consulting,
athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or
more employees or owners.
Child and Family Tax Credit

The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000,
and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable)
$500 credit for a taxpayer's dependents who are not qualifying children. The adjusted gross income
level at which the credits begin to be phased out has been increased to $200,000 ($400,000 for joint
filers).
State and Local Taxes

The itemized deduction for state and local income and property taxes is limited to a total of $10,000
starting in 2018
Mortgage Interest
Under the new law, mortgage interest on loans used to acquire a principal residence and a second
home is only deductible on debt up to $750,000 (down from $1 million), starting with loans taken out in
2018. And there is no longer any deduction for interest on home equity loans, regardless of when the
debt was incurred.
Miscellaneous Itemized Deductions

There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to
the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax
preparation costs, investment expenses, union dues, and unreimbursed employee expenses.
Medical Expenses
Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5
percent of adjusted gross income for all taxpayers. Previously, the AGI “floor” was 10% for most
taxpayers.
Casualty and Theft Losses

The itemized deduction for casualty and theft losses has been suspended except for losses incurred in
a federally declared disaster.
Overall Limitation on Itemized Deductions

The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers
whose adjusted gross income exceeded specified thresholds. The itemized deductions of such
taxpayers were reduced by 3% of the amount by which AGI exceeded the applicable threshold, but the
reduction could not exceed 80% of the total itemized deductions, and certain items were exempt from
the limitation.
Moving Expenses
The deduction for job-related moving expenses has been eliminated, except for certain military
personnel. The exclusion for moving expense reimbursements has also been suspended.
Alimony
For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying
spouse and will not be taxable to the receiving spouse.
Healthcare “individual mandate.”

Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health
coverage.
Estate and Gift Tax Exemption

Effective for decedents dying, and gifts made, in 2018, the estate and gift tax exemption has been
increased to roughly $11.2 million ($22.4 million for married couples).
Alternative Minimum Tax (AMT) Exemption

The AMT has been retained for individuals by the new law but the exemption has been increased to
$109,400 for joint filers ($54,700 for married taxpayers filing separately), and $70,300 for unmarried
taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1
million for joint filers, and over $500,000 for all others

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Individual Tax Summary

New Deduction for “qualified business income.”

Child and Family Tax Credit

State and Local Taxes

Miscellaneous Itemized Deductions

Casualty and Theft Losses

Overall Limitation on Itemized Deductions

Healthcare “individual mandate.”

Estate and Gift Tax Exemption

Alternative Minimum Tax (AMT) Exemption

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