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New Tax Bill – Tax Cut And Jobs Act – 2018

Tax Cut And Jobs Act 2018 – Update 12/21/2017

The bill itself is large and contains several tax law changes, some of which are complex, and many of which go into effect in a matter of weeks.  A brief summary follows.

The nonpartisan Tax Policy Center’s analysis of the final bill states that eight in ten Americans will pay lower taxes and around five percent of people will pay more next year (2018).  The five percent will mostly be folks who earn six figures and own expensive homes in locations with high local taxes, such as New York and California.  The state and local tax deduction has been capped at $10,000.  In summary, most people will pay less tax for the next eight years.

W-2 employees should see an increase in their take home pay starting in February 2018 as the withholding tables are adjusted.

Another group who could be unhappy with the new bill, besides those with high state and local taxes, are individuals who have unreimbursed employee expenses. This deduction is being eliminated.  This is the taxpayer who completes Form 2106 (for unreimbursed employee expenses) and are able to itemize.

The Affordable Care Act (Obamacare) penalty for not having health insurance compliant with current law is being eliminated after December 31, 2018.  You must be incompliance for tax year 2017 & 2018, but in 2019 you will not be penalized.

Individual tax rate changes

A more prominent change that will occur for many taxpayers will be the change in the standard deduction.  The bill increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (from $6,500, $9,550, and $13,000 respectively under current law).

The personal exemption has been eliminated in 2018.  Previously a taxpayer could deduct $4,050 per person.  The personal exemptions for a family of four was $16,200.


For tax years 2018 through 2025, the following rates would apply to individual taxpayers:

Single taxpayers

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000 37%

Heads of households

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000 37%

Married taxpayers filing joint returns and surviving spouses

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000 37%

Married taxpayers filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000 37%

Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500 37%


Special brackets would apply for certain children with unearned income.  The income amounts will be indexed to inflation.

The Alternative Minimum Tax (AMT) is eliminated for corporations, but is kept for individuals.  The exemption has been raised from $86,200 to $109,400 for married couples and increase the phaseout to $500,000 for individuals and $1 million for married couples.

The child tax credit for a child under age 17 on December 31st goes up to $2,000 from $1,000 and is fully refundable up to $1,400.

The estate tax is in the new bill and the amounts you can pass to your heirs tax free and not subject to the 40% tax have been doubled to the first $11.2 million for singles and $22.4 million for married couples.

Corporate tax rate is lowered from 35% to 21%.

Pass-through businesses are typically sole proprietorships, joint ventures, limited liability companies and S corporations. They are not taxed as corporations. Instead, the profits from these businesses are counted in (or flow to) the owners’ personal tax returns.  The finalized bill gives these businesses a 20 percent deduction for the first $315,000 of joint income. Some exclusions or phase out may apply to “Specified service trades or businesses”.

Student loan interest deduction remains and tuition waivers (college credits) to graduate students will remain tax free.

Medical expenses that exceed 7.5% of your adjusted gross income can be deducted if you can itemize.  This goes back to the way is was before the Affordable Care Act (Obamacare).

The state and local tax (SALT) deduction remains, but only up to $10,000.  In, Texas the property taxes and sales tax can still be deducted.  In states with income taxes, the amounts paid up to $10,000 can still be deducted.  Any amount over $10,000 may not be deducted.


On the business side major changes have occurred and are fairly complex.  The following is a very brief summary and in no way comprehensive.

The corporate alternative minimum (AMT) has been repealed.

The bill would repeal the Sec. 199 domestic production activities deduction.


The bill eliminates the deduction with respect to (1) an activity generally considered to be entertainment, amusement, or recreation; (2) membership dues with respect to any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility or portion thereof used in connection with any of the above items.  Meals may still be deducted up to 50% for expenses associated with the operating of their business.


Depreciation has been modified.  Bonus depreciation has been extended to allow businesses to immediately deduct 100% of the cost of eligible property through tax year 2022.  After 2022 the amount allowable is phased down through 2026.  Bonus depreciation is now available for used equipment.

Sec. 179 expensing has been increased, the maximum amount taxpayers can expense now is $1 million and the phaseout threshold to $2.5 million.  The amount are indexed to inflation after 2018.  Certain tangible personal property used in lodging a real property is now included in Sec. 179.

Luxury automobile depreciation limits have been increased for vehicles placed in service after 2017.  The maximum amounts are $10,000 for year one, $16,000 for year 2, $9,600 for year 3, and $5,760 for later years.

The list of taxpayers that are eligible to use the cash method of accounting has been expanded by allowing businesses that have average annual gross receipts of $25 million or less in the three prior tax years to use the cash method. The $25 million gross-receipts threshold would be indexed for inflation after 2018.


The bill would limit the deduction for net operating losses (NOLs) to 80% of taxable

income for losses.  Property and casualty insurance companies are exempt from this limitation.


Businesses would be allowed to carry NOLs forward indefinitely. The two-year carryback and special NOL carryback provisions would be repealed. However, farming businesses would still be allowed a two-year NOL carryback.



For another perspective the summary from the Tax Foundation is included below: (


Summary From the Tax Foundation

Changes to the Individual Income Tax

  • Indexes tax brackets and other provisions by the chained CPI measure of inflation.
  • Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (compared to $6,500, $9,550, and $13,000 respectively under current law).
  • Eliminates the personal exemption.
  • Retains the charitable contribution deduction, and limits the mortgage interest deduction to the first $750,000 in principal value. Limits the state and local tax deduction to a combined $10,000 for income, sales, and property taxes. Taxes paid or accrued in carrying on a trade or business are not limited.
  • Limits or eliminates a number of other deductions.
  • Expands the child tax credit from $1,000 to $2,000, while increasing the phaseout from $110,000 in current law to $400,000 married couples. The first $1,400 would be refundable.
  • Effectively repeals the individual mandate penalty, by lowering the penalty amount to $0, effective January 1, 2019.
  • Raises the exemption on the alternative minimum tax from $86,200 to $109,400 for married filers, and increases the phaseout threshold to $1 million.
  • The majority of individual income tax changes would be temporary, expiring on December 31, 2025. Several, such as the adoption of chained CPI and functional repeal of the individual mandate, would be permanent.

Changes to Business Taxes

  • Lowers the corporate income tax rate permanently to 21 percent, starting in 2018.
  • Establishes a 20 percent deduction of qualified business income from certain pass-through businesses. Specific service industries, such as health, law, and professional services, are excluded. However, joint filers with income below $315,000 and other filers with income below $157,500 can claim the deduction fully on income from service industries. This provision would expire December 31, 2025.
  • Allows full and immediate expensing of short-lived capital investments for five years. Increases the section 179 expensing cap from $500,000 to $1 million.
  • Limits the deductibility of net interest expense to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter.
  • Eliminates net operating loss carrybacks and limits carryforwards to 80 percent of taxable income.
  • Eliminates the domestic production activities deduction (section 199) and modifies other provisions, such as the orphan drug credit and the rehabilitation credit.
  • Enacts deemed repatriation of currently deferred foreign profits, at a rate of 15.5 percent for cash and cash-equivalent profits and 8 percent for reinvested foreign earnings.
  • Moves to a territorial system with base erosion rules.
  • Eliminates the corporate alternative minimum tax.

Other Changes

  • Doubles the estate tax exemption from $5.6 million to $11.2 million, which expires on December 31, 2025. The exemption will increase with inflation.