Congress passed Public Law No. 115-97, or the Tax Cuts and Jobs Act, on December 22, 2017. It is the most significant change in the Internal Revenue Code in decades.
2018 Individual Tax Updates
Tax brackets decreased across the board. The top rate dropped from 39.6% to 37%.
Standard deductions nearly doubled: $12,000 for individuals, $18,000 for head of household, and $24,000 for married filing jointly. The expanded standard deduction encourages fewer taxpayers to itemize deductions.
State and local deductions are limited. Between income tax, sales tax, and property tax, taxpayers cannot deduct more than $10,000 total.
Several itemized deductions are repealed, including unreimbursed employee expenses, tax preparation fees, contingency fees for a taxable legal award, expenses from a taxable hobby, and financial advisory fees.
Personal exemptions are repealed.
Child tax credit is expanded from $1,000/child to $2,000/child. The credit is also refundable up to $1,400/child. The additional child tax credit, which acted as a refundable child credit, is repealed and replaced by the new refundable portion of the credit.
§529 accounts are amended to allow for up to $10,000 in tuition per student in primary or secondary schooling. Previously, they could only cover higher education.
Exemption threshold for individuals subject to the Alternative Minimum Tax grows to $1,000,000 for married filing jointly, and $500,000 for all other taxpayers.
Individual Shared Responsibility Payment (Obamacare Penalty) is eliminated.
Alimony payments deduction eliminated for divorce agreements dated after 2018.
Exemption threshold for individuals subject to the estate tax grows to $22,400,000 for married filing jointly, and $11,200,000 for all other taxpayers.
Net operating loss deduction is limited to 80% of taxable income.
Roth IRA conversions cannot be undone.
2018 Corporate/Business Tax Updates
Corporate tax brackets collapse into one flat rate of 21%.
Alternative Minimum Tax no longer applies to corporations.
Companies with gross receipts under $25,000,000 do not have to account for inventory or use the accrual basis of accounting. The former threshold was $5,000,000.
The 50% deduction for entertainment expenses is repealed.
The new §199A deduction grants a 20% deduction against pass-thru income. Limitations phase in if the taxpayer’s taxable income for the year exceeds $315,000 for married filing jointly, or $157,500 for all other taxpayers.