Question

You are a high-priced accountant and your client, Very Rich Taxpayer retains your service to perform the following assignment. Very Rich Taxpayer has heard that 2017 Tax Cuts and Jobs Act has brought about changes in the tax law. He asks you to list the changes as it relates to individuals. Please analyze each tax change and give him your opinion. This assignment should be drafted in a memo format.

Answer 1

Following are the changes in 2017 Tax Cuts and Jobs Act:

• The framework lowers rates for almost every tax bracket. The current seven brackets remain, but with new, generally higher income thresholds and lower rates.

Single filers, 2018-2025

Taxable income over	Up to	Marginal rate
$0	$9,525	10%
$9,526	$38,700	12%
$38,701	$82,500	22%
$82,501	$157,500	24%
$157,501	$200,000	32%
$200,001	$500,000	35%
$500,001	and up	37%

Heads of household, 2018-2025

Taxable income over	Up to	Marginal rate
$0	$13,600	10%
$13,601	$51,800	12%
$51,801	$82,500	22%
$82,501	$157,500	24%
$157,501	$200,000	32%
$200,001	$500,000	35%
$500,001	and up	37%

Married couples filing jointly, 2018-2025

Taxable income over	Up to	Marginal rate
$0	$19,050	10%
$19,051	$77,400	12%
$77,401	$165,000	22%
$165,001	$315,000	24%
$315,001	$400,000	32%
$400,001	$600,000	35%
$600,001	and up	37%

Married couples filing separately, 2018-2025

Taxable income over	Up to	Marginal rate
$0	$9,525	10%
$9,526	$38,700	12%
$38,701	$82,500	22%
$82,501	$157,500	24%
$157,501	$200,000	32%
$200,001	$300,000	35%
$300,001	and up	37%

• The law raised the standard deduction to $24,000 for married couples filing jointly in 2018 (from $12,700), to $12,000 for single filers (from $6,350), and to $18,000 for heads of household (from $9,350)
• The law temporarily raises the child tax credit to $2,000, with the first $1,400 refundable, and creates a non-refundable $500 credit for non-child dependents. The child credit can only be claimed if the taxpayer provides the child's Social Security number. (This requirement does not apply to the $500 credit.) Qualifying children must be younger than 17 years of age. The child credit begins to phase out when adjusted gross income (AGI) exceeds $400,000 (for married couples filing jointly, not indexed to inflation)
• Taxpayers who itemize their taxes will be able to deduct up to $10,000 of state and local property taxes and income taxes (or sales taxes) paid. Only about one in 10 taxpayers is expected to itemize deductions under the new tax code.
• The law limits the application of the mortgage interest deduction for married couples filing jointly to $750,000 worth of debt, down from $1,000,000 under the old law, but up from $500,000 under the House bill. Mortgages that are taken out before Dec. 15, 2017, are still subject to the current cap.
• The charitable deduction expands for those who itemize, from 50 percent of income to 60 percent. The charitable deduction is denied for payments made in exchange for seats at college sports games.
• The bill expands the deduction for medical expenses for two years for expenses exceeding 7.5 percent of adjusted gross income, down from the current-law level of 10 percent.
• Health savings accounts (HSAs) were not affected by the law, and the traditional 401k contribution limit in 2019 increased to $19,000 and $25,000 (a $6,000 catch-up) for those aged 50 and older.
• The exemption for the alternative minimum tax (AMT) increases from $86,200 to $109,400 for married filers. The exemption phases out starting at $1 million, up from $164,100. The new exemption is $70,300 for non-married filers and phases out beginning at $500,000.