Lighthouse Consultants
Mar 17, 2023
2018 Tax Law Overhaul: Major Changes for Individuals & Businesses
The new U.S. tax law, which took effect on December 31, 2018, introduces significant changes for both individuals and businesses. Here's a breakdown of the key provisions:
Individual Income Tax
Adjusted Tax Rates: The seven tax brackets are now 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Increased Standard Deductions: The standard deduction for single filers rises to $12,000, while the joint filing deduction increases to $24,000.
Elimination of Personal Exemptions: Personal exemptions are eliminated.
Modified Itemized Deduction Limits: The cap on state and local tax (SALT) and property tax deductions is set at $10,000. The medical expense deduction threshold is lowered from 10% AGI to 7.5% AGI. The home mortgage interest deduction limit was reduced from $1 million to $750,000.
Enhanced Child Tax Credit: The child tax credit for children under 17 increases from $1,000 to $2,000. A $500 child tax credit is available for qualifying dependents who do not qualify for the full credit.
Repeal of Individual Health Insurance Mandate: The individual health insurance mandate is repealed, effective 2019.
Raised Alternative Minimum Tax (AMT) Exemption: The AMT exemption for single filers is increased to $73,000, while the joint filing exemption rises to $109,540.
Additional Individual Tax Benefits
Home Sale Exclusion: Up to $500,000 of gain from the sale of a home that has been owned and occupied for the past five years is tax-free.
529 Plans: 529 plans can be used to pay for qualified private elementary and secondary school education expenses.
Alimony Payments in Divorce or Separation Agreements: Alimony payments under divorce or separation agreements signed after December 31st are no longer tax-deductible.
Moving Expenses: Moving expenses are no longer tax-deductible, except for military personnel.
Tax Preparation Fees: Tax preparation fees are no longer tax-deductible.
Natural Disaster Losses: Only losses from federally declared natural disasters are tax-deductible, with exceptions for individual cases. For instance, wildfires in California are considered federally declared disasters, allowing taxpayers to deduct losses. However, if your home catches fire due to an accident, the loss is not deductible.
Increased Estate Tax Exemption: The estate tax exemption is raised to $10,980,000.
Corporate Income Tax
Reduced Corporate Tax Rate: The corporate tax rate is slashed from 35% to 21%.
Qualified Business Income Deduction: Eligible S corporations and partnerships can deduct 20% of their pass-through income before applying individual income tax rates.
Limited Deduction for Employee Benefits: The deduction for employee benefits is reduced from 100% to 50%.
No Tax Exemption for Foreign Subsidiary Earnings: The new law does not change the obligation of U.S. companies to pay U.S. taxes on their foreign subsidiary earnings.
For more information or to consult with a tax professional for more specific advice, please feel free to contact us.
Here are some resources to help you learn more about the new tax law: