On December 22, 2017, a new Tax Reform Act was passed that was made effective beginning in 2018. Generally speaking, this new Act will sunset on January 1, 2026. That means that all of the previous tax provisions, rules, and regulations that were effective as of December 31, 2017 will go back into effect unless these 2018 changes are changed again or made permanent.
This new Tax Act provides for a number of significant changes. Those changes are as follows:
1. The tax brackets for various taxpayers have been revised. For example, for a married couple filing a joint return, if their taxable income is under $19,050, the tax is 10% of the taxable income. If their taxable income is over $19,050 but not over $77,400, the tax is $1,905 plus 12% of the excess over $19,050. If their taxable income is over $77,400 but not over $165,000, then the tax is $8,907 plus 22% of the excess over $77,400. If their taxable income is over $165,000 but not over $315,000, then their tax is $28,179 plus 24% of anything over $165,000. If their taxable income is over $315,000 but not over $400,000, then their taxable income would be $64,179 plus 32% of the excess over $315,000. If their taxable income is over $400,000 but not over $600,000, then their tax would be $91,379 plus 35% of the excess over $400,000. If their taxable income is over $600,000, then the tax would be $161,379 plus 37% of the excess over $600,000. Thus, the income tax rates for married individuals range from 10% to 37%.
2. The income tax rates for single individuals also range from 10% to 37%; however, the brackets of taxable income are slightly different.
3. For estates and trusts, the tax brackets are as follows: If the taxable income is not over $2,550, the tax is 10% of the taxable income. If the taxable income is over $2,550 but not over $9,150, then the tax is $255 plus 24% of the excess over $2,550. If the taxable income is over $9,150 but not over $12,500, the tax is $1,839 plus 35% of the excess over $9,150, and if the taxable income is over $12,500, the tax would be $3,111.50 plus 37% of the excess over $12,500. Thus, trusts and estates’ brackets reach the highest rates at a much lower amount of taxable income than for individuals.
4. The standard deduction has been increased to $24,000 for joint filing taxpayers, or for a surviving spouse, and $18,000 for head of household and $12,000 for single taxpayers.
5. For an individual, there is no personal exemption.
6. There are no miscellaneous itemized deductions that are subject to the 2% floor.
7. The deduction for state, local, and local real estate taxes is now limited to $10,000 per tax year.
8. There is no longer an above-the-line deduction for alimony payments, and also, payees of alimony are not required to include those payments in gross income.
9. You can still take a deduction for charitable contributions if you are able to itemize your deductions. That means that your deductions must exceed $24,000.
10. The federal estate tax exemption increased from $5,490,000 to $11,180,000 per person.
As a result of all of these changes, please consult your CPA or tax preparer in the next month or so to plan for year end accordingly.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.