Fun Fact of the Day: 2018 Tax Plan

new-tax-act

Fun fact of the day:

Here is an overview of the new Tax Cuts and Jobs Act, introduced Dec 22, 2017 by President Trump:

1. Top individual tax rate decrease to 37% (previously 39.6%)
2. Still 7 income tax brackets (changes back to previous rates starting in 2026)
3. Those 7 income tax brackets are as follows: 1- 10%; 2- 12%; 3- 22%; 4- 24%; 5- 32%; 6- 35%; 7- 37%
4. Standard deduction is doubled (single increased from $6,350 to $12K; married/joint increased from $12.7K to $24K) (changes back to previous rates starting in 2026)
5. Personal exemptions are eliminated ($4,150 could be subtracted for each person before)
6. Most itemized deductions are eliminated (i.e., moving expenses (except military), alimony (paying))
7. Deductions for charitable contributions, retirement savings, & student loan interest are KEPT
8. Deduction on mortgage interest is limited to the 1st $750K of the loan; interest on home equity lines of credit can no longer be deducted; however, current mortgage holders aren’t affected
9. Taxpayers can deduct up to $10K in state & local taxes
10. Medical expenses are expanded in ’17 & ’18 (deduction of medical expenses 7.5% or more of income; previously it was 10% for those born after 1952, while seniors had 7.5%)
11. Obamacare tax is repealed for those w/o health insurance in 2019
12. Estate tax exemption doubled to $11.2M singles and $22.4M couples (changes back to previous levels starting in 2026)
13. Alternative minimum tax increased from $54,300 to $70,300 singles & $84,500 to $109,400 joint; exemptions phase out @ $500K singles & $1M joint (changes back to previous rates starting in 2026)
14. Child tax credit increased from $1K to $2K; parents who don’t meet threshold to pay taxes can still claim credit up to $1.4K; income level is increased from $110K to $400K for married tax filers
15. Parents can use 529 savings plans for tuition @ private & religious K-12 schools & home-schooled students’ expenses; $500 credit for each non-child dependent
16. Corp tax rate decrease from 35% to 21%
17. Standard deduction for pass-through businesses is raised to 20% (ends in 2025)
18. Pass-through businesses include: sole proprietorships, partnerships, limited liability companies, S corporations, real estate companies, hedge funds, & private equity funds
19. Deductions phase out for service professionals once their income reaches $157,500 singles & $315K joint filers
20. Interest expense deduction is limited to 30% of income
21. 1st 4 yrs is EBITDA (Earnings Before Interest Taxes Depreciation & Amortizations); then goes back to EBIT (Earnings Before Interest & Taxes)
22. Depreciable assets can be deducted in 1 yr instead of amortizing them over several yrs (equipment has to be purchased from Sept 27, 17 to Jan 1, 23)
23. Carried interest is taxed at $23.8% instead of 39.6% before; firms must hold assets for 1 yr to qualify for lower rate (going to last 3 yrs)
24. Corporate AMT of 20% tax rate is eliminated; companies could not deduct R&D spending or investments in low-income neighborhood
25. System changing from worldwide to territorial system (corporations will not be taxed on foreign profit)
26. Companies can repatriate the $2.6T they hold in foreign cash stockpiles; they pay a 1-time tax rate of 15.5% on cash & 8% on equipment
27. Oil drilling in Arctic National Wildlife Refuge is now allowed
28. Tax credits for electric vehicles & wind farms are maintained
29. Orphan drug research deduction is decreased from 50% to 25% (orphan drugs target rare diseases)
30. Taxes on beer, wine, & liquor is cut
31. Business cuts are permanent; individual cuts expire in 2025 (unless stated otherwise above)

Any questions? :)

Oh and…those in the 20-80% income range will receive a 1.7% increase in after-tax income and those in the 95-99% range will receive a 2.2% increase. The rich get richer!