Dear DLHC clients and friends,

As you all know by now, the Tax Cuts and Jobs Act was signed into law by President Trump on December 22, 2017. You have probably seen or heard countless reports on the impact it will have on the American people and businesses. The problem with what you have heard, it may have been “slanted” by whoever wrote the article or the TV show may have generalized the impact for all of American taxpayers, not DLHC clients.

We hope to bring this home to you in a series of E-Blasts that may be more meaningful than what you may have previously heard or read. This E-Blast will center on individual taxpayers. Another will be on businesses and owners of flow-through entities such as partnerships, limited liability companies and S-corporations. Lastly, we will address the estate and gift tax implications of the new law, again how it relates to most of you.

Keep in mind the following are generalizations – not absolutes. Enjoy and call us if you have any questions or specific needs to be addressed!

 

Individual Winners and Losers

Winners:

  1. Taxpayers whose taxable income is less than $150,000. Pretty much in each filing status, due to the lower brackets and rates, you will see a decrease in your federal tax liability.
  2. Taxpayers who rent or have paid off mortgages (with little or no mortgage interest deduction) will now have a standard deduction of $12,000 single, $24,000 married. Therefore, they will not have to itemize to benefit from the new law.
  3. Taxpayers with 529 savings plans. Under the new rules for qualified education expenses incurred after December 31, 2017, taxpayers can use their 529 plans to pay for their children’s K-12 expenses (prior act only applied to post-secondary, college expenses). The new law allows for withdrawals for public, private or religious schools and also home schooled children, used for educational purposes up to $10,000 per child each year.
  4. Taxpayers with flow-through income (from S-corporations, limited liability companies, and partnerships) whose personal taxable income is less than $315,000 (married) and $157,500 (single). These taxpayers will now receive a 20% deduction for “flow-through” income if certain conditions are met. We will address these in the business E-Blast.
  5. Taxpayers with children eligible for the child tax credit will see the credit increase from $1,000 to $2,000 per child. Not only does the credit increase, but the phase out amounts now are increased up to $400,000 for married couples (up from $110,000) so many more couples will now be eligible for this credit.
  6. Taxpayers who were in the highest tax rates (i.e. 35% and 39.6%) will benefit as the highest rate has now been capped at 35%.

Losers:

  1. Taxpayers whose state income tax and real estate tax deduction is greater than $10,000. This is now the cap on this type of deduction.
  2. Taxpayers who acquire very expensive homes. The mortgage deduction is now limited to interest on $750,000 on residential mortgages, down from $1 million. This change does not affect current mortgages, only new newly purchased home mortgages acquired after December 15, 2017. Under the new bill, the $100,000 home equity line interest deduction also appears to be at risk. Many tax advisors are now saying the $100,000 equity line is no longer deductible, regardless of when the debt was incurred. However, you will still be able to deduct home mortgage interest on your 2017 tax returns.
  3. Potentially, all taxpayers who were previously in alternative minimum tax (AMT). Those taxpayers were never allowed medical deductions, state and local tax deductions, nor miscellaneous itemized deduction such as brokerage fees, etc. The AMT rate was 26.5%. Under the new bill, many taxpayers are not expected to be in AMT but all taxpayers lose state and local tax in excess of $10,000 and miscellaneous deductions (i.e. brokerage fees, etc.). Although they may not be in AMT, the taxpayers may likely be in a bracket higher than 26.5% so the lost deductions will cost them more than ever before.
  4. Taxpayers with meals and entertainment expenses. These deductions were previously allowed at 50%. Now entertainment expenses are not deductible at all. Employer provided meals (previously 100% deductible) are now limited to 50%. Other fringe benefit expenses are now limited under revised Section 274.
  5. Taxpayers who, in the future, incur moving expenses, alimony expenses, safe deposit expenses, and other miscellaneous itemized deductions will no longer be able to deduct these expenses.

Other provisions that were thought to be lost or changed remained in the new bill. These include, but are not limited to, the favorable tax rate on capital gains and qualified dividends, medical expenses, education expenses, and student loan interest.

Topic Current Law Final Bill
Rates[1] - Single 10% - $0 - $9,325
15% - $9,326 - $37,950
25% - $37,951 - $91,900
28% - $91,901 - $191,650
33% - $191,651 - $416,700
35% - $416,701 - $418,400
39.6% - over $418,400
10% - $0- $9,525
12% - $9,526 - $38,700
22% - $38,701- $82,500
24% - $82,501- $157,500
32% - $157,501 - $200,000
35% - $200,001 - $500,000
37% - over $500,000
Rates - Married Filing Jointly & Surviving Spouses
10% - $0 - $18,650
15% - $18,651 - $75,900
25% - $75,901 - $153,100
28% - $153,101 - $233,350
33% - $233,351- $416,700
35% - $416,701 - $470,700
39.6% - over $470,700
10% - $0 - $19,050
12% - $19,051 - $77,400
22% - $77,401 - $165,000
24% - $165,001 - $315,000
32% - $315,001- $400,000
35% - $400,001 - $600,000
37% - over $600,000
Rates - Married Filing Separately
10% - $0 - $9,325
15% - $9,326 - $37,950
25% - $37,951 - $76,550
28% - $76,551 - $116,675
33% - $116,676 - $208,350
35% - $208,351 - $235,350
39.6% - over $235,350
10% - $0 - $9,525
12% - $9,526 - $38,700
22% - $38,701 - $82,500
24% - $82,501 - $157,500
32% - $157,501 - $200,000
35% - $200,001 - $300,000
37% - over $300,000
Rates - Heads of Households
10% - $0 - $13,350
15% - $13,351 - $50,800
25% - $50,801 - $131,200
28% - $131,201 - $212,500
33% - $212,501 - $416,700
35% - $416,701 - $444,500
39.6% - over $444,500
10% - $0 - $13,600
12% - $13,601 - $51,800
22% - $51,801 - $82,500
24% - $82,501 - $157,500
32% - $157,501 - $200,000
35% - $200,001 - $500,000
37% - over $500,000
Capital Gains

By holding assets for one year or less, any capital gain will be considered short-term and will be taxed at ordinary income tax rates. By holding assets for one year or more, any capital gain will be considered long-term and is taxed at rates up to 20%

 
 
 
No significant change, except the brackets will be adjusted
Standard Deduction[2] Single & Married Filing Separately - $6,350
Married Filing Jointly & Surviving Spouse - $12,700
Heads of Households - $9,350
Single & Married Filing Separately - $12,000
Married Filing Jointly & Surviving Spouse - $24,000
Heads of Households - $18,000
Personal Exemption $4,050 per person in each household Eliminated

 

Please feel free to call one of us to address any other items that you feel may apply to you.