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Feb 15, 201809:02 AMOpen Mic

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The Tax Cuts and Jobs Act — What’s in it for you?

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On Dec. 22, 2017, President Donald Trump signed the legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA) into law. This law represents one of the most significant revisions to the Internal Revenue Code in more than 30 years. Many provisions included in the TCJA took effect Jan. 1, and affect virtually all U.S. taxpayers, including individuals, businesses, exempt organizations, and trusts and estates. However, a number of the individual income tax provisions in the bill sunset or expire after Dec. 31, 2025.

What follows is a high-level summary of relevant provisions of the TCJA that may affect you or your business. A deeper analysis of the changes made by the TCJA can be found at bkd.com/taxreform.

Individual provisions

Individual rates on ordinary income: The seven-bracket structure was retained but with new rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% (from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) as follows:

Note that the tax brackets will be adjusted for inflation using a chained measurement method of the U.S. Consumer Price Index.

Individual Alternative Minimum Tax (AMT): The individual AMT was retained but with increased exemption amounts of $70,300 for single filers ($109,400 for married filing jointly). The TCJA also increases phase-out amounts of this increased exemption amount to $500,000 for single filers ($1 million MFJ).

Standard deduction: The TCJA nearly doubles the standard deduction under previous law for single and married filers to $12,000 and $24,000, respectively.

Personal exemption: The personal exemption is consolidated into the larger standard deduction under the bill and repealed along with the deduction phase out. 

Child Tax Credit (CTC): The TCJA provides an increased CTC of $2,000, including an enhanced refundable amount of $1,400. In addition, the bill significantly increases the credit’s phase-out limit to begin at $200,000 for single filers ($400,000 MFJ).

Individual mandate: The TCJA effectively removes the individual shared responsibility payment under the Affordable Care Act by decreasing this additional tax to zero for months beginning after Dec. 31, 2018.

State and Local Income, Real Estate, and Personal Property Tax (SALT) expense1: The TCJA combines the deductions for SALT not paid or accrued in a trade or business and caps them at $10,000.

Home Mortgage Interest Expense1: Under the TCJA, the deduction for home mortgage interest expense for mortgages incurred after Dec. 15, 2017, is limited to interest paid on the first $750,000 of indebtedness. No deduction is allowed for interest paid on home equity loans effective Jan. 1.

Note that on Jan. 11, the IRS issued updated 2018 income tax withholding tables to reflect overall marginal individual tax rate reduction under the TCJA. Employers are required to use the updated withholding tables no later than Feb. 15, 2018. So, generally speaking, paychecks for many employees will increase in February 2018 as a result of the new law.

(Continued)

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