(TCJA) Tax Cuts & Jobs Act of 2017: Summary of Major Changes

Tax Cuts and Jobs Act – TCJA Summary: What are the Changes?

The Tax Cuts & Jobs Act (“TCJA”) was approved by Congress December 20, 2017, and signed by President Trump on December 22, 2017. The Act impacts virtually every individual and business in a way not seen in over 30 years. With most provisions effective 2018, it lowers the individual and corporate tax rates, repeals numerous tax credits and deductions, enhances the child tax credit, boosts business expensing, and impacts the Affordable Care Act (ACA) by effectively repealing the individual mandate.

Here are highlights of the major changes enacted by the new provisions, excerpted from our 4-hr CPE course Tax Cuts and Jobs Act of 2017.

Rates, Standard Deduction, Exemptions and Credits

Tax Cuts & Jobs Act Changes: The Act temporarily replaces the existing rate structure with a new rate structure. Tax rate schedules for 2018 are:

Filing Status Taxable Income Rate
Single $1 to $9,525 10%
$9,525 to $38,700 12%
$38,700 to $82,500 22%
$82,500 to $157,500 24%
$157,500 to $200,000 32%
$200,000 to $500,000 35%
Over $500,000 37%
Head of Household $1 to $13,600 10%
$13,600 to $51,850 12%
$51,850 to $82,500 22%
$82,500 to $157,500 24%
$157,500 to $200,000 32%
$200,000 to $500,000 35%
Over $500,000 37%
Married, Joint $1 to $19,050 10%
$19,050 to $77,400 12%
$77,400 to $165,000 22%
$165,000 to $315,000 24%
$315,000 to $400,000 32%
$400,000 to $600,000 35%
Over $600,000 37%
Married, Separate $1 to $9,525 10%
$9,525 to $38,700 12%
$38,700 to $82,500 22%
$82,500 to $157,500 24%
$157,500 to $200,000 32%
$200,000 to $300,000 35%
Over $300,000 37%

Unlike present law, which uses a measure of the CPI-U, the new inflation adjustment uses the C-CPI-U.

Effective date: The changes apply to taxable years beginning after 2017, and beginning before 2026.

Standard Deduction Increased

Prior or Existing Law: An individual reduces adjusted gross income (AGI) by any personal exemption deductions and either:

(1) the applicable standard deduction, or

(2) his or her itemized deductions to determine taxable income (§63).

The basic standard deduction varies depending upon a taxpayer’s filing status. For 2017, the amount of the standard deduction was $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return.

Tax Cuts & Jobs Act Changes: The standard deduction is increased to $24,000 for joint filers (and surviving spouses) and $12,000 for individual filers. Single filers with at least one qualifying child could claim a standard deduction of $18,000. These amounts are adjusted for annual inflation.

Personal Exemptions Repealed

Prior or Existing Law: A taxpayer generally may claim personal exemptions for the taxpayer, the taxpayer’s spouse, and any dependents (§151). For 2017, taxpayers may deduct $4,050 for each personal exemption. This amount is indexed annually for inflation.

Tax Cuts & Jobs Act Changes: The deduction for personal exemptions and the personal exemption phase-out are repealed.

Comments: The personal exemption for the taxpayer and taxpayer’s spouse would be consolidated into a larger standard deduction. The personal exemption for children and dependents would be consolidated into an expanded child tax credit and a new family tax credit.

Effective date: The changes apply to taxable years beginning after 2017, and beginning before 2026.

Business Income of Individuals – 20% Deduction

Prior or Existing Law: Businesses organized as sole proprietorships, partnerships, limited liability companies, and S corporations are generally treated for Federal income tax purposes as “pass-through” entities subject to tax at the individual owner or shareholder level rather than the entity level.

Tax Cuts & Jobs Act Changes:  Sole proprietors, S corporation shareholders, and partners in a partnership will be entitled to a deduction equal to 20% of their allocable share of business income (§199A). However, there are several limitations, including:

(1) the deduction cannot generally exceed 50% of the taxpayer’s share of the W-2 wages paid by the business or, in the alternative, 25% of the taxpayer’s share of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis (the original purchase price) of property used in the production of income, and

Note: The W-2 limitations do not apply if a taxpayer earns less than $157,500 (if single; $315,000 if married filing jointly).

(2) certain personal service businesses ( i.e., accountants, doctors, lawyers, etc.) are not eligible for the deduction unless their taxable income is less than $157,500 (if single; $315,000) if married.

Note: The deduction does not reduce adjusted gross income.

Effective date: The changes apply to taxable years beginning after 2017, and beginning before 2026.

Child Tax Credit (Enhanced) & Family Tax Credit (New)

Prior or Existing Law: An individual may claim a tax credit for each qualifying child under the age of 17. The amount of the credit per child is $1,000. The aggregate amount of child credits that may be claimed is phased out by $50 for each $1,000 of AGI over $75,000 for single filers and $110,000 for joint filers (§24). Neither the $1,000 credit amount nor the AGI thresholds are indexed for inflation. The taxpayer must submit a valid taxpayer identification number (TIN) for each child for whom the credit is claimed.

To the extent the child credit exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit, or ACTC) equal to 15% of earned income in excess of $3,000. The taxpayer is not required to have a Social Security number (SSN) to claim the refundable portion of the credit.

Tax Cuts & Jobs Act Changes: The child credit is increased to $2,000 per qualifying child and the maximum refundable amount of the credit is increased from $1,100 to $1,400. The credit is further modified to temporarily provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children, such as an elderly parent.

The phase-out for the combined child credit, the non-child dependent credit, and the credit for other taxpayers would be increased from $110,000 (for joint filers) under current law to $400,000 (for joint filers), and from $75,000 (for single filers) to $200,000 (for single filers). This increase in the phase-out would eliminate the marriage penalty in the credit.

Note: Taxpayers are required to provide a Social Security number (SSN) to claim the refundable portion of the credit.

Effective date: The changes apply to taxable years beginning after 2017, and beginning before 2026.

 

Excerpted from Tax Cuts and Jobs Act of 2017 4-hr. CPE course by Danny Santucci.

 

Tax Cuts & Jobs Act CPE course

TCJA Summary: Tax Cuts and Jobs Acts 4-hr CPE course for CPAs and Enrolled Agents – $59

 

This 4-hr CPE course includes discussion of changes imposed by TCJA relating to individual and business income taxes. After reading the TCJA Summary, participants will be able to:

1. Apply changes imposed by the Tax Cuts & Jobs Act (TCJA) relating to individual income taxes by identifying:

  • modifications to tax rates & the personal exemption,
  • AMT exemptions,
  • changes to the child tax credit,
  • new educational incentives & student loan discharge rules,
  • Mortgage interest & suspended deduction provisions, and
  • Alimony & estate taxation changes.

2. Point out key TCJA business provisions, including new corporate tax rates, expanded §179 expensing, denial of certain entertainment expense, and business credits.

  • Recognize TCJA changes to:
  • insurance taxation,
  • tax treatment of excess of compensation,
  • deferred foreign income provisions, and
  • exempt organization and international taxation.

TCJA topics are also covered in our 6-hr course 2018 Easy Tax Update and Inflation Adjustments.

The TCJA Summary 4-hr courses is also included in our MEGA CPE Bundle and our Unlimited Tax Bundle.