It’s that time of year again. Tax time. Before you file your 2018 taxes, we wanted to share an overview of the key tax changes affecting individuals made by the Tax Cuts and Jobs Act of 2017. Although this is just a general overview, we found this article to be very beneficial in helping our clients understand some of the key changes.
Taxpayers should anticipate some big changes when they file their 2018 federal income tax returns. Many of the tax changes made by the Tax Cuts and Jobs Act of 2017 (TCJA) take effect in 2018 — and their impact will be significant. Here’s an overview of key tax changes affecting individuals.
Form 1040 Makeover
The U.S. Individual Income Tax Return — Form 1040 — has a new, streamlined look for 2018. The new form is about half the size but is accompanied by various new supplementary schedules that taxpayers must file as required. The IRS anticipates that taxpayers with straightforward tax situations will only need to file the new 1040 with no additional schedules.
Tax Rates and Brackets
As before, the tax rate schedules are graduated so that a certain amount of income is taxed at the lowest rate, an amount over that is taxed at the next lowest rate, and so on. The accompanying tables show how the 2018 tax rates and brackets for each filing status compare to those in effect for 2017. As you can see, most rates are lower and some brackets are wider under the revised schedules.
Tax Rate Schedules Compared
| 2018 | 2017 | ||
| Single | |||
| 10% | $0 – $9,525 | 10% | $0 – $9,325 |
| 12% | $9,526 – $38,700 | 15% | $9,326 – $37,950 |
| 22% | $38,701 – $82,500 | 25% | $37,951 – $91,900 |
| 24% | $82,501 – $157,500 | 28% | $91,901 – $191,650 |
| 32% | $157,501 – $200,000 | 33% | $191,651 – $416,700 |
| 35% | $200,001 – $500,000 | 35% | $416,701 – $418,400 |
| 37% | Over $500,000 | 39.6% | Over $418,400 |
| 2018 | 2017 | ||
| Head of Household | |||
| 10% | $0 – $13,600 | 10% | $0 – $13,350 |
| 12% | $13,601 – $51,800 | 15% | $13,351 – $50,800 |
| 22% | $51,801 – $82,500 | 25% | $50,801 – $131,200 |
| 24% | $82,501 – $157,500 | 28% | $131,201 – $212,500 |
| 32% | $157,501 – $200,000 | 33% | $212,501 – $416,700 |
| 35% | $200,001 – $500,000 | 35% | $416,701 – $444,550 |
| 37% | Over $500,000 | 39.6% | Over $444,550 |
| 2018 | 2017 | ||
| Married Filing Jointly (and Surviving Spouses) | |||
| 10% | $0 – $19,050 | 10% | $0 – $18,650 |
| 12% | $19,051 – $77,400 | 15% | $18,651 – $75,900 |
| 22% | $77,401 – $165,000 | 25% | $75,901 – $153,100 |
| 24% | $165,001 – $315,000 | 28% | $153,101 – $233,350 |
| 32% | $315,001 – $400,000 | 33% | $233,351 – $416,700 |
| 35% | $400,001 – $600,000 | 35% | $416,701 – $470,700 |
| 37% | Over $600,000 | 39.6% | Over $470,700 |
| 2018 | 2017 | ||
| Married Filing Separately | |||
| 10% | $0 – $9,525 | 10% | $0 – $9,325 |
| 12% | $9,526 – $38,700 | 15% | $9,326 – $37,950 |
| 22% | $38,701 – $82,500 | 25% | $37,951 – $76,550 |
| 24% | $82,501 – $157,500 | 28% | $76,551 – $116,675 |
| 32% | $157,501 – $200,000 | 33% | $116,676 – $208,350 |
| 35% | $200,001 – $300,000 | 35% | $208,351 – $235,350 |
| 37% | Over $300,000 | 39.6% | Over $235,350 |
What Else Has Changed for 2018?
Some other important points to keep in mind:
- Capital gains rates remain the same, but there are new income breakpoints for determining when the rates apply.
- The alternative minimum tax exemption amounts are higher, as are the income thresholds for phaseout of the exemptions.
- Standard deductions have almost doubled for each filing status.
- No deduction is available for personal exemptions.
- A larger child tax credit of up to $2,000 per child under age 17 is available, and the income thresholds for phaseout of the credit are higher.
- Up to 20% of qualified business income passed through from partnerships, S corporations, and sole proprietorships may be deductible on owners’ personal tax returns. (Various restrictions apply.)
- The itemized deduction for state and local taxes (SALT) is capped at $10,000 ($5,000 if married filing separately).
- Mortgage interest is still tax deductible for those who itemize. However, for homebuyers who incur home acquisition debt after December 15, 2017, there’s a new limit on the amount of debt that can qualify: generally $750,000 ($375,000 if married filing separately).
- Interest on home equity debt — generally defined as debt that is secured by a qualified residence and that is taken out for reasons other than to acquire, build, or substantially improve that residence — is not deductible.
- The floor applicable to the itemized medical expense deduction is 7.5% of adjusted gross income (AGI).
- No itemized deduction is allowed for personal casualty and theft losses unless the loss is attributable to a federally declared disaster.
- There is no itemized deduction for unreimbursed employee business expenses and certain miscellaneous expenses that in total exceed 2% of AGI.
- The above-the-line deduction for work-related moving expenses is only available to members of the U.S. armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.
There’s more to the Tax Cuts and Jobs Act of 2017 than can be covered in a general overview such as this one.