Sweeping changes signed into law under the Tax Cuts and Jobs Act of 2017 underscore the importance of careful planning to avoid surprises and take advantage of provisions that may positively impact your finances. Below are several changes individuals and families need to know about as they plan for and manage their income and finances in the months ahead.
New tax rates and bracketsWhile there are still seven different income tax brackets, rates and income thresholds for those brackets changed as of January 1, 2018, resulting in lower income tax rates for many taxpayers. A complete list of 2018 income tax rates and brackets is available at The Tax Foundation.
Standard deductions increaseThe personal exemption (which allowed taxpayers to deduct a set amount for themselves, their spouses, and each dependent) has been repealed through 2025. However, standard deductions have nearly doubled to $12,000 for single filers, $18,000 for heads of household, and $24,000 for married taxpayers filing jointly.
Many deductions have been capped or eliminatedWhile taxpayers may continue to choose between claiming a standard deduction or itemizing their deductions, a number of itemized deductions have been capped or repealed, including:
- The state and local tax deduction (SALT) is capped at $10,000 ($5,000 if married filing separately);
- The mortgage interest deduction is capped at loans of no more than $750,000 ($375,000 if married filing separately);
- All miscellaneous itemized deductions subject to the 2% adjusted gross income (AGI) floor were repealed;
- The home equity loan interest deduction has been eliminated;
- The casualty and loss reduction remains but will be limited to presidentially declared disasters.
Temporary reduction in medical expense floorThe floor for the out-of-pocket medical expense deduction has been lowered from 10% of adjusted gross income (AGI) to 7.5% of AGI for tax years 2017 and 2018 only. This is good news for those with significant, qualifying medical expenses. However, it will revert to 10% of AGI in 2019.
Child tax credit doubles– While parents will no longer be able to claim personal exemptions for their children, they can claim the child tax credit which doubled from $1,000 per child to $2,000 per child. In addition, $1,400 of this tax credit is refundable, meaning taxpayers can claim this much over and above their tax bill for the year, generating a refund. The child tax credit income threshold also increased but begins to phase out at an annual income of $200,000 for single parents and $400,000 for married filing jointly.
New non-child dependent credit– Taxpayers with non-child dependents may be eligible for a nonrefundable $500 tax credit for each qualifying dependent. This applies to children over the age of 17, elderly parents, and adult children with disabilities. The credit will phase out for those with AGI above $200,000 (single) and $400,000 (married).
529 funding for elementary and secondary education– 529 education savings plan distributions previously available for college and higher education expenses can now be used for elementary or secondary public, private or religious school expenses, up to $10,000 per year tax-free, per student.
AMT didn’t go away entirelyThe alternative minimum tax (AMT) was repealed for corporations but is still applicable to certain noncorporate taxpayers. However, since the exemption amounts increased fewer households may be subject to the AMT.
And one last NIITWhile the individual mandate penalty tax on individuals without health insurance was repealed, the 3.8% surtax on net investment income (NIIT), which was created as part of the Affordable Care Act, remains. The NIIT applies to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.
While this is far from a complete list of reforms ushered in by the Tax Cuts and Jobs Act, the number of changes points to the importance of working closely with us throughout the year to make sure the decisions you make support the financial goals you’ve established for yourself and your family.
Contact the office today at to set aside time to discuss how these and other recent changes to the tax code may impact your wealth management strategy.