How does the “Tax Cuts and Jobs Act” Affect Individuals?

Greg Addison | 1-18-2018

It’s that time of year when we start thinking of tax returns. As most of us are aware, President Trump signed the Tax Cuts and Jobs Act at the end of December. From a tax perspective, the legislation accomplishes the following for individuals:

  • The top individual tax rate will drop from 39.6 percent to 37 percent.
  • It cuts income tax rates, doubles the standard deduction, and
    eliminates personal exemptions.

Here’s a summary of how the Tax Cut & Jobs Act (the Act) changes Individual income taxes, deductions for child and elder care, and business taxes. The individual changes will expire at the end of 2025.  

 

Income Taxes

The Act keeps the seven income tax brackets, but lowers tax rates. Employees will see changes reflected in their withholding in February 2018 paychecks. These rates revert to the 2017 rates in 2026. 

The Act is illustrated in the following chart. The income levels will rise each year with inflation. However, they will rise more slowly than in the past because the Act uses the chained consumer price index. Over time, that will move more people into higher tax brackets.

 

Income Tax Rate Income Levels for Those Filing As:
2017 2018-2025 Single Married-Joint
10% 10% $0 – $9,525 $0 – $19,050
15% 12% $9,525 – $38,700 $19,050 – $77,400
25% 22% $38,700 – $82,500 $77,400 – $165,000
28% 24% $82,500-$157,500 $165,000-$315,000
33% 32% $157,500-$200,000 $315,000-$400,000
33% – 35% 35% $200,000-$500,000 $400,000-$600,000
39.6% 37% $500,000+ $600,000+

 

The Act doubles the standard deduction. A single filer’s deduction increases from $6,350 to $12,000. The deduction for Married and Joint Filers increases $12,700 to $24,000.

These levels will revert back to the current (2017) level in 2026. As a result, it’s estimated that 94% of taxpayers will take the standard deduction. (Note: The National Association of Home Builders and the National Association of Realtors opposed this change.  Their rationale…? As more taxpayers take a standard deduction, fewer would take advantage of the mortgage interest deduction, which the associations believe creates a negative incentive for home building and home buying.) 

That could lower housing prices. But some believe this could be a good time to do that. A growing number of people are concerned that real estate is in another bubble, which could lead to another collapse. 

The Act eliminates personal exemptions. Before the Act, taxpayers subtracted $4,150 from income for each dependent claimed. As a result, some families with larger numbers of children will pay higher taxes despite the Act’s increased standard deductions.  

The Act eliminates many itemized deductions, which includes moving expenses, except for members of the military. Those paying alimony can no longer deduct it, while those receiving it can. This change begins in 2019 for divorces signed in 2018.

The Act keeps deductions for charitable contributions, retirement savings, and student loan interest. It limits the deduction on mortgage interest to the first $750,000 of the loan.  Interest on home equity lines of credit can no longer be deducted. However, current mortgage-holders are not affected

Taxpayers can deduct up to $10,000 in state and local taxes. They must choose between property taxes and income or sales taxes. This will likely harm taxpayers in high-tax states like New York and California.

The Act expands the deduction for medical expenses for 2017 and 2018.  It allows taxpayers to deduct medical expenses that are 7.5 percent or more of income. Before the bill, the cutoff was 10 percent for those born after 1952. Seniors already had the 7.5 percent cutoff

Effective in 2019, the Act repeals the Obamacare tax on those without health insurance. 

The Act doubles the estate tax exemption to $11.2 million for singles and $22.4 million for couples. That helps the top 1 percent of the population who pay it. These top 4,918 tax returns contribute $17 billion in taxes. The exemption reverts to pre-Act levels in 2026. 

The Act keeps the Alternative Minimum Tax (AMT). It increases the exemption from $54,300 to $70,300 for singles and from $84,500 to $109,400 for joint filers. The exemptions phase out at $500,000 for single filers and $1 million for joint filers. The exemption reverts to pre-Act levels in 2026.   

 

Child Care 

The Act increases the Child Tax Credit from $1,000 to $2,000.  Even parents who don’t earn enough to pay taxes can claim the credit up to $1,400. It increases the qualifying income level from $110,000 to $400,000 for married tax filers.   

It allows a $500 credit for each non-child dependent. The credit helps families caring for elderly parents.  

It allows parents to use 529 savings plans for tuition at private and religious K-12 schools. They can also use the funds for expenses for home-schooled students.

 

Questions? You can reach Greg Addison at 1(800) 821-7715 x142, or e-mail him at gaddison@lewer.com 

  

Lewer Financial Advisors, LLC and its affiliates do not provide tax, legal or accounting advice. This
material has been prepared for general information purposes only, and is not intended to provide, and
should not be relied on for tax advice, legal advice or accounting advice. You should consult your own
tax, legal and accounting advisors before engaging in any transaction. Lewer Financial Advisors is a
multi-state registered investment advisor domiciled in Missouri.  
 
Lewer Financial Advisors is a member of the Lewer group of companies.
Greg Addison

Author: Greg Addison

Greg Addison is the Senior Vice President of Lewer Financial Services, LLC. Lewer Financial Advisors is a corporate Registered Investment Advisor, specializing in both personal wealth management and institutional retirement plan consulting for the individual investors, business owners, dealers, retailers, and franchisees who know The Lewer Companies well.