As we begin the new year, there are many changes afoot which will impact clients in a variety of ways. The passage of the 2017 Tax Cuts and Jobs Act introduces many changes to personal income taxation beginning with the 2018 tax return filing. The following contains a few of the highlights which will impact your overall taxation going forward.
|2017 Individual Income Tax Rates||2018 Individual Income Tax Rates|
|Married Filing Jointly and Surviving Spouses:||Married Filing Jointly and Surviving Spouses:|
|10% (Taxable income not over $18,650)||10% (Taxable income not over $19,050)|
|15% (Over $18,650 but not over $75,900)||12% (Over $19,050 but not over $77,400)|
|25% (Over $75,900 but not over $153,100)||22% (Over $77,400 but not over $165,000)|
|28% (Over $153,100 but not over $233,350)||24% (Over 165,000 but not over $315,000)|
|33% (Over $233,350 but not over $416,700)||32% (Over 315,000 but not over $400,000)|
|35% (Over $416,700 but not over 470,700)||35% (Over $400,000 but not over 600,000)|
|39.6% (over $470,700)||37% (over $600,000)|
|Single Individuals:||Single Individuals:|
|10% (Taxable income not over $9,325)||10% (Taxable income not over $9,525)|
|15% (Over $9,325 but not over $37,950)||12% (Over $9,525 but not over $38,700)|
|25% (Over $37,950 but not over $91,900)||22% (Over $38,700 but not over $82,500)|
|28% (Over $91,900 but not over $191,650)||24% (Over $82,500 but not over $157,500)|
|33% (Over $191,650 but not over $416,700)||32% (Over $157,500 but not over $200,000)|
|35% (Over $416,700 but not over $418,400)||35% (Over $200,000 but not over $500,000)|
|39.6% (Over $418,400)||37% (Over $500,000)|
|Long Term Capital Gains Rates||Long Term Capital Gains Rates|
|0% (10% and 15% tax brackets)||Single Individuals:|
|15% (25%,28%,33 and 35% tax brackets)||0% ($0-$38,599)|
|20% (39.6% tax bracket)||15% ($38,600 – $425,799)|
|Married Filing Joint:|
|15% ($77,200 – $478,999)|
|Personal Exemptions||Personal Exemptions|
|$4,050 for each personal exemption||Have been eliminated for 2018+|
|Standard Deduction||Standard Deduction|
|Single – $6,350; Married – $12,700||Single – $12,000; Married – $24,000|
|Additional deduction for blind/elderly||Retains deduction for blind/elderly|
In addition to these changes, your allowable itemized deductions have changed substantially with the new tax law. Many individuals will now use the standard deduction rather than itemizing due to the standard deduction increases. For those who will still benefit from itemizing, many aspects of the Schedule A have changed for 2018.
|Medical Expenses||Deductible in excess of 10% of AGI||Deductible in excess of 7.5% AGI|
|State/Local Income Tax||fully deductible||Combination of State/Local income tax & property taxes limited to $10,000|
|Property Taxes||See above|
|Mortgage Interest/Home Equity||Mortgage interest on up to $1 million acquisition indebtedness & on $100,000 of Home Equity debt||New mortgages limited to interest on $750k of acquisition indebtedness; existing mortgages still old limits; Home Equity interest not deductible|
|Miscellaneous Deductions (tax prep fees, investment management fees, employee business expenses) subject to 2% floor||Deductible in excess of 2% of AGI||No longer deductible|
Charitable contribution deductions have been maintained with little change and the overall itemized deduction phaseout for high income individuals (Pease limitation) has been eliminated entirely.
For those who will no longer be able to itemize their deductions, but are still considering charitable contributions, the ability to make use of a Qualified Charitable Transfer from your IRA is still part of current tax code and available for those age 70 ½ or older. This allows charitable transfers from your IRA to a qualified 501 (c) (3) organization, without current taxation to you. Additionally, it counts toward your required distribution from the IRA. This allows you to satisfy your required distribution, benefit your favorite charity and reduce your overall income taxation.
Because many other tax code sections changed as a result of the 2017 Tax Cuts and Jobs Act, it will be important for you to work closely with your tax preparer to ensure you are aware of all the changes which directly affect you. We will be in contact with tax preparers over the next year to assist in planning for these changes for our clients. Please contact your financial advisor if you have questions about your situation.