Federal Tax Reform - TCJA
The Tax Cuts and Jobs Act, TCJA, made dramatic changes to federal tax law. It is worth reviewing some of these changes as they are due to expire at the end of 2025.
A tax bracket is a range of income within which your Taxable Income will fall. There are seven tax brackets, and most have been reduced:
Old: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%
New: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
This compensates for the disappearance of the personal exemption, and it may reduce a taxpayer’s incentive to itemize. The new standard deductions, per filing status:
Single filer: $12,400
Married couples filing separately: $12,400
Head of household: $18,650
Married couples filing jointly & surviving spouses: $24,800
Filers who are blind, disabled, or aged 65 or older can claim an additional standard deduction of $1,300 this year.
You can now only deduct up to $10,000 of some combination of a) state and local property taxes or b) state and local income taxes or sales taxes per year. For Married Filing Separate the SALT deduction limit is just $5,000.
This year, as much as $1,400 of it is refundable. Phase-out thresholds for the credit have risen substantially. They are now set at the following modified adjusted gross income (MAGI) levels:
Single filer or head of household: $200,000 (was $75,000 in 2017)
Married couples filing separately: $400,000 (was $110,000 in 2017)
The list of disappeared deductions is long and includes the following tax breaks:
Home equity loan interest deduction
Moving expenses deduction
Casualty and theft losses deduction (for most taxpayers)
Unreimbursed employee expenses deduction
Subsidized employee parking and transit deduction
Tax preparation fees deduction
Investment fees and expenses deduction
IRA trustee fees (if paid separately)
Convenience fees for debit and credit card use for federal tax payments
Home office deduction for employees
Unreimbursed travel and mileage deduction for employees
Small businesses are growing specially under the new Gig Economy. The basic benefit is that business owners whose firms are LLCs, partnerships, S corporations, or sole proprietorships can now deduct 20% of qualified business income, which should reduce your tax liability. (Trusts, estates, and cooperatives are also eligible for the 20% pass-through deduction.)
The Affordable Care Act instituted tax penalties for individual taxpayers who went without health coverage. Adults who do not have qualifying health coverage will no longer face an individual minimum penalty of $695 this year. Also, no penalty for dependent children.