Tax Cuts and Jobs Act Summarized

May 1, 2018  | By Erik Lincoln

The Tax Cuts and Jobs Act made many changes to the US federal tax system. To help grasp all of those changes, we summarized each change in an easy to read format.  Our summary categorizes all changes into 31 categories and then summarizes each change in one to two sentences.  This summary is intended to help you determine which changes potentially impact you.

1. INCOME TAX RATES

  • Individual income tax rate structure replaced with 10%, 12%, 22%, 24%, 32%, 35%, and 37% tax brackets
  • Reduction of corporate tax rate to a flat 21%
  • Reduction in corporate dividends received deduction
  • Estates and trusts income tax rate structure replaced with 10%, 24%, 35%, and 37% tax brackets
  • Kiddie tax modified to effectively apply estates’ and trusts’ ordinary and capital gains rates to child’s net unearned income

2. INFLATION ADJUSTMENTS

  • Inflation adjustment of income tax brackets to be made based on chained CPI-U (C-CPI-U), instead of the CPI-U
  • Chained CPI-U (C-CPI-U) replaces CPI-U in inflation adjustments of various tax parameters under the Code

3. ALTERNATIVE MINIMUM TAX

  • Alternative minimum tax exemption amounts for individuals increased
  • AMT adjustment for standard deduction is made retroactively inapplicable in 2016 and 2017 to net disaster losses from 2016 disaster areas
  • Alternative minimum tax on corporations is repealed
  • Corporate minimum tax credit (MTC) may offset regular tax liability for any tax year, and is refundable for 2018–2021

4. ACA INDIVIDUAL MANDATE

  • Shared responsibility payment (penalty) eliminated after 2018

5. INDIVIDUALS: DEDUCTIONS AND PERSONAL CREDITS

  • Standard deduction is almost doubled, inflation adjustment is modified
  • Deduction for personal exemptions for taxpayer, spouse, and dependents is suspended; return-filing and withholding requirements are modified
  • Miscellaneous itemized deductions are disallowed
  • Overall limitation on itemized deductions (“Pease limitation” or “3%/80% rule”) is suspended
  • 7.5%-of-AGI floor for medical expense deduction is retroactively extended through 2018 and applied to all taxpayers
  • Itemized deduction is limited to $10,000 for SALT—combined state/local property, state/local/foreign income, and (if elected) general sales taxes
  • Mortgage interest deduction acquisition debt maximum is lowered to $750,000, deduction for home equity interest is suspended
  • Personal casualty losses are nondeductible unless attributable to a federally declared disaster
  • Gambling loss limitation is broadened: deduction for any expense incurred in gambling—not just gambling losses—is limited to gambling winnings
  • Alimony won’t be deductible by the payor or includible by the recipient for post-2018 divorce or separation instruments
  • $3,000 deduction for living expenses of members of Congress is eliminated
  • Limit on an individual’s contributions of cash to charitable organizations is increased from 50% to 60% of donor’s contribution base
  • Charitable deduction is denied for contributions to a college or university in exchange for athletic event seating rights
  • Moving expense deduction eliminated, except for certain armed forces members
  • Donee-reporting exception to substantiation requirement for charitable contributions is retroactively repealed
  • Child tax credit is increased to $2,000 and expanded and a partial credit is allowed for certain non-child dependents
  • Refundable portion of the child tax credit is increased to $1,400 for tax years beginning after 2017
  • Qualifying child’s social security number is required to claim child tax credit

To see our complete summary of the Tax Cuts and Jobs Act, click the following link. Tax Cuts and Jobs Act Summarized

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.