Tax Cuts and Jobs Act (TCJA) Delivers Significant Changes For Individuals

 In Blog

Contributed by: Paula Daley DePlanche, CPA, MST, Partner

As the U.S. federal government’s single largest revenue source, individual income tax is something that impacts most of us on an annual basis. However, 2018 marks the first year impacted by the Tax Cuts and Jobs Act (TCJA). The biggest tax reform bill passed in over three decades, TCJA legislation that has revamped taxpayer obligation across multiple verticals in both positive and potentially not-so-positive ways.

How Will The Tax Cuts And Jobs Acts Impact You Come Tax Time?
First passed in December 2017, the majority of the TCJA’s provisions took effect as of January 1, 2018, making all of its updates and new regulations fair game for taxpayers this year.

As a result, many taxpayers are approaching the filing season with uncertainty and more than a little trepidation wondering how the act will impact them directly. Knowing some of the biggest updates and changes outlined in the Tax Cuts and Jobs Act can help to manage (and adjust) expectations as well as ensure you don’t miss out on relevant claims and deductions this tax year.

Some of the TCJA’s most significant provisions include:

Reduced Tax Rates
With the top tax rate being reduced to 37%, down from 39.6%

Standard Deductions Almost Doubled

  • Married filing jointly: $24,000
  • Single filer: $12,000
  • Head of household filer: $18,000

Exemptions
The TCJA eliminates exemptions entirely

Medical Expense Threshold
Reduced to 7.5% for 2018 (and 2017)

State and Local Tax
Both state and local taxes have been capped at $10,000 ($5,000 married filing separately)

Mortgage Interest Expense
Maximum acquisition indebtedness is reduced to $750,000, down from $1 million. For those mortgages entered into before 12-15-17, the $1 million threshold will still apply.

Charitable Donations
The income-based percentage limit increased to 60%, up from 50%

Miscellaneous Itemized Deductions
Unavailable for 2018 through 2025

Child Tax Credits
Increased to $2,000, up from $1,000.  Additionally, the threshold at which this credit begins to phase out was raised to $400,000 for married taxpayers filing a joint return, and $200,000 for other taxpayers.

Pass-Through Income Deduction
This provision will be further described in a separate blog due to its complexity. However, a basic overview is that the provision allows for a deduction up to 20% of “qualified business income” from a partnership, S corporation, or sole proprietor, as well as 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.

Contact Us Today
Leone, McDonnell & Roberts, Professional Association can help you determine how the TCJA will impact your 2018 returns. Our team of tax professionals helps clients to optimize tax credits and deductions across multiple specialties to maximize potential returns. Contact us today to schedule a consultation with one of our accountants to discuss how the TCJA legislation may impact how you file this year.