There were drastic changes to the tax code. Here are some high level changes that will affect most of my clients. Soon, I will dive deeper into the changes. For example, food and entertainment might not be deductible and there is a 20% deduction for pass-through entities (S-corps). I need to research these more before I can give you my option.
Please notice that I do not call this a Tax Cut. With a $20 Trillion deficit, this tax reform is schedule to increase it by $1 Trillion a year for the next 7 years. If anything, I am calling this a "Future Tax Increase!"
If that is the case, does it not make sense to move more of your money into tax free vehicles.
Individual income taxes
The standard deduction nearly doubled: $12,000 for single taxpayers and $24,000 for married couples filing jointly. While personal exemptions have been eliminated, the child tax credit increased from $1,000 to $2,000 per qualifying child, subject to a maximum refundable amount.
Tip: You (and your spouse) may be less likely to itemize deductions on your individual tax returns in 2018.
Top individual tax rates dropped from 39.6 percent to 36 percent, with seven tax brackets that vary by income. This means individual income taxes are generally declining, but not necessarily for all taxpayers.
Tip: Locate your 2018 tax bracket below.
2018 tax brackets
Single filers | Married filing jointly | ||
10% | $0-$9,525 | 10% | $0-$19,050 |
12% | $9,525-$38,700 | 12% | $19,051-$77,400 |
22% | $38,701-$82,500 | 22% | $77,401-$165,000 |
24% | $82,501-$157,500 | 24% | $165,001-$315,000 |
32% | $157,501-$200,000 | 32% | $315,001-$400,000 |
35% | $200,001-$500,000 | 35% | $400,001-$600,000 |
37% | $500,001 or more | 37% | $600,001 or more |
Standard deduction: $12,000 Personal exemption: Eliminated | Standard deduction: $24,000 Personal exemption: Eliminated | ||
The mortgage interest deduction is available to fewer taxpayers and is eliminated on certain home equity loans.
Tip: If you recently purchased a home (or are considering a new home purchase) and your total mortgage debt (“acquisition indebtedness”) is $750,000 or more, consult your tax advisor as this may eliminate your ability to take a mortgage interest deduction.
Tip: If you have a home equity loan, you may be unable to take an interest deduction unless if the funds are used for certain limited purposes.
Estate and gift taxes
The annual gift tax exclusion amount increased to $15,000/year
Tip: Consider leveraging your annual gift tax exclusion amount to provide younger family members with their own life insurance coverage, potentially creating a multigenerational legacy.
The lifetime exclusion amount for gift and estate tax purposes increased to $10 million/person, or $20 million/married couple (indexed for inflation).
In 2018, the exclusion amount is $11.2 million/person, or $22.4 million/married couple. The Act leaves intact the principles of portability (giving surviving spouses the ability to “port” or carry-over the unused exclusion amount or a deceased spouse) and carryover basis (which can reduce or eliminate different taxes for heirs when they sell certain inherited assets).
Tip: the Act creates unprecedented opportunities to make large gifts, including life insurance premium gifts, but only for a limited period of time. On January 1, 2026, this part of the Act sunsets, and the exclusion amount is scheduled to revert back to $5 million/person (indexed for inflation).
Tip: Individuals who previously exhausted their lifetime exclusion amount may have been given another opportunity to make additional gifts. They may be wise to consider gifting and estate planning strategies with their team of advisors today.
Business taxes
C corporations are now taxed at a flat 21 percent rate.
This is a permanent change and will not expire in 2026. In addition, the corporate alternative minimum tax (AMT) has been permanently eliminated. Double taxation still exists for owners (shareholders) of C corporations.
Tip: Many C corporations will have additional dollars for planning opportunities, including risk management, business succession planning, and fringe benefits for key employees and executives.
Sole proprietors and pass-through entities-including S corporations, partnerships, and most LLCs-may be entitled to a 20 percent deduction on qualified business income, effectively reducing the top rate from 37 percent to 29.6 percent. The analysis is complex and should only be undertaken by a qualified tax professional.
Tip: this provision is arguably one of the most complex tax provisions. Whether your business will receive a deduction depends on the nature of your business, your personal income level, and how you receive money from your company.
