How the New Tax Plan Impacts Individuals (Tax Brackets, Deductions, Exemptions)

This is the first in a series of posts aimed at analyzing the new tax laws that go into effect on January 1, 2018. There will still undoubtedly be numerous clarifications and corrections coming out over time as the IRS issues Regulations and Technical Corrections, so this is just a preliminary understanding. Let’s start by taking a look at some of the main areas impacting individual taxpayers.

Tax Brackets

One area that was expected to be addressed was a reduction in the number of tax brackets. The finalized bill retains seven tax brackets just at altered tax rates and income ranges.

Tax Rate Married Filing Joint Married Filing Separate Head of Household Single
10% $0 to $19,050 $0 to $9,525 $0 to $13,600 $0 to $9,525
12% $19,051 to $77,400 $9,526 to $38,700 $13,601 to $51,800 $9,526 to $38,700
22% $77,401 to $165,000 $38,701 to $82,500 $38,701 to $82,500 $38,701 to $82,500
24% $165,001 to $315,000 $82,501 to $157,500 $82,501 to $157,500 $82,501 to $157,500
32% $315,001 to $400,000 $157,501 to $200,000 $157,501 to $200,000 $157,501 to $200,000
35% $400,001 to $600,000 $200,001 to $300,000 $200,001 to $500,000 $200,001 to $500,000
37% $600,001 or more $300,001 or more $500,001 or more $500,001 or more

Standard Deduction

The standard deduction has been nearly doubled for 2018. Married filing joint filers will be able to claim $24,000 with married filing separate and single taxpayers claiming $12,000. Head of household filers will be able to claim $18,000 as their standard deduction.

Personal Exemptions

To counteract the standard deduction increase, the new tax plan will eliminate personal exemptions. For 2017 these are $4,050 per person claimed on the tax return.

Itemized Deductions

With the increase in standard deductions, a number of taxpayers would no longer be itemizing deductions to begin with. The new plan takes this a step further and eliminates most itemized deductions. The following are the only itemized deductions that remain intact for 2018:

  • Charitable contributions
    • Deduction limit is increased from 50% of AGI to 60%
  • Medical expenses
    • Deduction threshold is reduced from 10% of AGI to 7.5%
  • Mortgage interest
    • Debt limitation is reduced from $1,000,000 to $750,000
    • Home equity indebtedness is no longer deductible interest
  • State and local taxes
    • Deduction is limited to a $10,000 total

It is vital to stay up-to-date on how this new tax plan will impact your finances. At Malloy, Montague, Karnowski, Radosevich & Co., P.A. (MMKR), we strive to help all our clients create a solid strategy to protect their financial goals. If you are concerned about how this tax plan will affect your financial future, call our team today to schedule a consultation with one of our accountants.