You’ve probably noticed that every media outlet has been offering endlessly opposing opinions about the Tax Cuts and Jobs Act (TCJA). That’s because it’s complicated.

So we’re starting today with a multi-part series examining specific provisions of the new tax bill and what they will mean for you.

PART 1

The fact is, it’s impossible to make generalizations—everyone’s taxes will not be lower (or higher, for that matter). Depending upon individual circumstances, some people might fare better than others.

The current structure of seven tax brackets was retained. As you compare the tables below, note how the rate percentages generally are lower but the brackets were shifted.

TOPIC	CURRENT LAW	FINAL BILL
Rates – 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 and 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

 

Now let’s look a little closer. Under current law, single taxpayers reached the 35% bracket with taxable income of $416,701 and reached the top rate (39.6%) at $418,400. In 2018, the 35% bracket is expanded from $200,001 to $500,000, and the top rate of 37% begins at $500,000.

For married taxpayers, the 35% bracket, which currently ends at a taxable income of $470,700, is expanded to $600,000. The current top rate of 39.6% also is lowered to 37%.

Capital gains and qualified dividends had no change in rates, but the brackets were adjusted. For 2018, married individuals filing a joint return hit the 15% rate at $77,200 and 20% at $479,000. Unmarried individuals reach the 20% breakpoint at $425,800. The additional 3.8% net investment income tax still applies to married taxpayers with incomes above $250,000 ($200,000 single).

Keep in mind that while rates generally have been reduced, some deductions, like state and local taxes, now are limited; others, such as personal exemptions, have been eliminated. But more about that later.

Meanwhile, we are here to help you navigate through tax reform. Please contact our office if you’d like additional information or have specific questions.