President Trump recently signed the tax reform bill into law which resulted into major changes to the code for both individuals and corporations. Here is a brief summary of the changes that will affect most of you.

•  Tax Brackets – Same number of brackets, different tax rates and different ranges. If your taxable income is the same in 2018 as was 2017, you will pay less federal taxes. A lot of the difference are in the changes leading to “taxable income”.

 

•  The marriage penalty is almost gone. – Under the old law the combined income for a married couple was taxed at a higher rate than the same total income for 2 individuals. For example: a single person with taxable income of $90K would be in the 25% bracket. A couple with $180k in taxable income is in the 28% bracket. Under the new law, both cases are in the 25% bracket.

 

• New Standard Deductions

 

Filing Status	Old Law	New Law
Single	$6,500	12,000
MFJ	13,000	24,000
MFS	6,500	12,000
HOH	9,350	18,000

 

• Capital Gains (stock sales and sales of other appreciated assets)

• • Short term gains are taxed as ordinary income (no difference)
  • Long term rates are as follows:

	Single	MFJ	HOH	MFS
0% up to:	$38,600	$77,200	$51,700	$38,600
15% up to:	425,000	479,000	452,400	239,500
20% over	425,000	479,000	452,400	239,500

 

• Tax Breaks for Parents. The child tax credit is increased from $1,000 per child to $2,000 per child. Of that amount $1,400 is refundable. In addition, the phase out for eligibility is expanded.

Tax Status	Old Law	New Law
MFJ	$110,000	$400,000
Individuals	$75,000	$200,000

• • If children are 17 years and older or you care for elderly relatives, you can claim a nonrefundable credit of $500 each.

 

• Home mortgage interest can only be taken for mortgage balances up to $750,000. This was previously $1 million. This applies to loans taken after Dec. 15, 2017. Interest on home equity debt can no longer be deducted.

 

•  State and Local Tax Deduction (SALT) is now limited to $10,000.

 

•  Deductions that are disappearing:

• •  Casualty and theft losses
  • Unreimbursed employee expenses
  • Moving expenses

 

• Pass-through income from sole proprietorship, LLCs, partnerships, and S corporations will be able to deduct 20% of the profit. There are phaseout income limits that apply to “professional services” business owners. They are $157,500 and $315,000 for individuals and married couples respectively.

 

• Corporate tax rates have been reduced for most corporations, but not for all. A corporation with profit below $50,000 will pay more in taxes. The new rate is 21% for all profits. The old rates were:

From	To	Rate
$0	$50,000	15%
50,000	75,000	25%
75,000	100,000	34%
100,000	335,000	39%

 

•  Interesting: If in 2017 your corporate profit was $50,000; your federal tax was $7,500 (50K * 15%). That tax increases under the new law to $10,500 (50K * 21%).  Let’s hope this is corrected soon.