Skip to Main Navigation Skip to Main Content

Tax Cuts & Jobs Act 2017: How Will This Affect You?

Kate Brown & Adam Morton
Wealth Management
Share:
tax cuts and job acts in federal building

With the passage of the Republican tax bill, let’s take a look at the noteworthy changes in simpler terms and how this bill will affect Americans. This bill includes the biggest overhaul of the U.S. tax code since the Reagan era. (Also refer to Nick Sargen’s post from December 14th.)

Corporate Tax Reform

Perhaps the most important aspect of the tax bill is the reduction of the corporate tax rate from 35% to 21%. This is important because it can make the U.S. more competitive globally. The business version of the alternative minimum tax (AMT) has also been repealed. In simple terms, lowering the corporate tax rate may improve the earnings outlook of U.S. businesses (large and small) beginning in 2018, which should be a positive for U.S. stocks.  In addition, U.S. businesses that are holding assets overseas will be allowed to "repatriate" those assets at an 8% tax rate, or 15.5% for liquid assets.

Individual Tax Reform

The number of tax brackets will remain the same with seven brackets beginning in 2018. However, most income ranges will benefit from lower rates. The top individual rate drops from 39.6% to 37%. 2018 proposed tax brackets are shown in the footnotes.

Exemptions, Standard Deduction & Child Tax Credits
It’s likely that fewer tax payers will itemize deductions because the standard deduction is going to nearly double under the new plan.  From $6,350 for individuals to $12,000, and from $12,700 for joint filers to $24,000. While the personal and dependent exemption is being repealed, families will benefit from additional child tax credits. The tax credit for each child (16 years old or younger) will increase from $1,000 to $2,000, plus $500 for non-child dependents. The phaseout for whom these apply is also increasing, reaching $400,000 for joint filers (up significantly from $110,000 in 2017).

Alternative Minimum Tax (AMT)
Under the new plan, fewer filers should face the AMT. The bill raises the income exemption levels to $70,300 for singles, up from $54,300 today; and to $109,400, up from $84,500, for married couples.

State, Local & Real Estate Taxes
There will now be a $10,000 cap on the amount taxpayers can deduct for property, income and sales taxes paid from their federal returns. This will be a negative for residents in higher-tax states. One potential strategy would be prepaying real estate taxes by December 31, 2017 in order to get the deduction this year as it may be limited next year. Consult with your tax professional to determine if this would benefit you. 

Mortgage Interest Deduction
There was much talk about this deduction going away, but it is still intact. In 2017, interest on mortgages up to $1.1 million were able to deduct interest paid, however, the new threshold will be lowered to $750,000 in debt moving forward.

Education Credits & 529 Plans
It is worth noting that under the new bill, distributions from a 529 Education Account can now be used for private elementary and secondary school expenses (up to $10,000 per student per year). The American Opportunity Tax Credit, the Lifetime Learning Credit, and the student loan interest deduction remain in place.

Estate Taxes
Also once considered to be repealed in total, the estate tax remains, however, the exemption has been doubled — now $11.2 million per individual and $22.4 million for married couples.  These amounts will be indexed for inflation as well. This means if the assets in your estate fall below those levels, you will not be subject to paying taxes on the estate. It is also worth noting that the “step-up” in basis rule will also remain in place.  Please note that these exemption amounts are scheduled to “sunset” in 2025. 

Pass-Through Taxation
Tax filers who have business income taxed on their individual tax return (“pass-through income”) may benefit from the new law.  S-Corporations, LLCs, sole proprietorships, and partnerships may benefit from a tax deduction with the top rate decreasing from 39.6% to 29.6%.

Health Insurance
The bill eliminates the mandate that requires individuals to purchase health insurance put in place by the Affordable Care Act (aka Obamacare). Under the new plan, there will no longer be a penalty for not buying health insurance starting in 2019.

Tax reform will likely remain a key economic issue in the first part of 2018. We will provide our thoughts on any changes that may be announced, and we invite you to contact our team of Wealth Planners to have a more in depth discussion about these historic changes.

If taxable income is  Then income tax equals
 Single Individuals                                                                               
 Not over $9,525  10% of the taxable income
 Over $9,525 but not over $38,700  $952.50 plus 12% of the excess over $9,525
 Over $38,700 but not over $82,500  $4,453.50 plus 22% of the excess over $38,700
 Over $82,500 but not over $157,500  $14,089.50 plus 24% of the excess over $82,500
 Over $157,500 but not over $200,000  $32,089.50 plus 32% of the excess over $157,500
 Over $200,000 but not over $500,000  $45,689.50 plus 35% of the excess over $200,000
 Over $500,000  $150,689.50 plus 37% of the excess over $500,000
 Heads of Households  
 Not over $13,600  10% of the taxable income
 Over $13,600 but not over $51,800  $1,360 plus 12% of the excess over $13,600
 Over $51,800 but not over $82,500  $5,944 plus 22% of the excess over $51,800

 

If taxable income is  Then income tax equals
 Over $82,500 but not over $157,500  $12,698 plus 24% of the excess over $82,500
 Over $157,500 but not over $200,000  $30,698 plus 32% of the excess over $157,500
 Over $200,000 but not over $500,000  $44,298 plus 35% of the excess over $200,000
 Over $500,000  $149,298 plus 37% of the excess over $500,000
 Married Individuals Filing Joint Returns & Surviving Spouses  
 Not over $19,050  10% of the taxable income
 Over $19,050 but not over $77,400  $1,905 plus 12% of the excess over $19,050
 Over $77,400 but not over $165,000  $8,907 plus 22% of the excess over $77,400
 Over $165,000 but not over $315,000  $28,179 plus 24% of the excess over $165,000
 Over $315,000 but not over $400,000  $64,179 plus 32% of the excess over $315,000
 Over $400,000 but not over $600,000  $91,379 plus 35% of the excess over $400,000
 Over $600,000  $161,379 plus 37% of the excess over $600,000
Married Individuals Filing Separate Returns  
 Not over $9,525  10% of the taxable income
 Over $9,525 but not over $38,700  $952.5 plus 12% of the excess over $9,525
 Over $38,700 but not over $82,500  $4,453.50 plus 22% of the excess over $38,700
 Over $82,500 but not over $157,500  $14,089.50 plus 24% of the excess over $82,500
 Over $157,500 but not over $200,000  $32,089.50 plus 32% of the excess over $157,500
 Over $200,000 but not over $300,000  $45,689.50 plus 35% of the excess over $200,000
 Over $300,000  $80,689.50 plus 37% of the excess over $300,000
Estates & Trusts  
 Not over $2,550  10% of the taxable income
 Over $2,550 but not over $9,150  $255 plus 24% of the excess over $2,550
 Over $9,150 but not over $12,500  $1,839 plus 35% of the excess over $9,150
 Over $12,500  $3,011.50 plus 37% of the excess over $12,500

Source of tables: Joint Explanatory Statement from U.S. House of Representatives
Fort Washington does not provide tax advice nor is an expert in tax law.

Kate Brown

Kate Brown, CFP®

Kate Brown is Senior Wealth Planner in the Private Client Group. She earned a Bachelor of from the University of Richmond. She is a Certified Financial Planner™.

Adam Morton

Adam Morton, CFP®

Adam Morton is a Wealth Advisor for the Private Client Group. He received a BS from Miami University and an MBA from Xavier University. He is a Certified Financial Planner™.

Related Articles

Ready to Continue?

You have clicked a link to access information on a new website, so you will be leaving westernsouthern.com

Because this new site is independent, Western & Southern Financial Group neither manages nor assumes responsibility for its content. 

Are you ready to move forward?