Towards the end of 2017, President Trump officially signed a new tax reform – the Tax Cuts and Jobs Act (TCJA) – into law. Though the law took place starting in 2018, taxpayers are just now seeing the direct impact of the law on their tax returns. Prior to the tax deadline coming up in the middle of April, here is a look at the biggest changes you may see.
Revised tax bracket structure and rates
The tax reform introduced changes to both the structure of the different tax brackets and the rates at which they are taxed. For tax rates, the 10 percent and 35 percent brackets remain the same, while all other brackets see a reduction anywhere from one to four percent. Changes to the overall tax bracket structure may bump taxpayers who were at the upper end of their 2017 bracket to a higher bracket on this year’s filing. See below for details on these changes:
| 2017 TAX RATE | 2018 TAX RATE |
| 10 percent | 10 percent |
| 15 percent | 12 percent |
| 25 percent | 22 percent |
| 28 percent | 24 percent |
| 33 percent | 32 percent |
| 35 percent | 35 percent |
| 39.6 percent | 37 percent |
| 2017 TAX BRACKET | 2018 TAX BRACKET |
| $0 to $9,325 | $0 to $9,525 |
| $9,325 to $37,950 | $9,525 to $38,700 |
| $37,950 to $91,900 | $38,700 to $82,500 |
| $91,900 to $191,650 | $82,500 to $157,500 |
| $191,650 to $416,700 | $157,500 to $200,000 |
| $416,700 to $418,400 | $200,000 to $500,000 |
| Over $418,400 | Over $500,000 |
Increase to standard deductions
Alongside changes to tax brackets and rates, standard deduction amounts have been increased substantially to be nearly double the amount from 2017. See below for details on the increases:
| FILING STATUS | 2017 STANDARD DEDUCTION | 2018 STANDARD DEDUCTION |
| Single | $6,350 | $12,000 |
| Married, filing jointly | $12,700 | $24,000 |
| Married, filing separately | $6,350 | $12,000 |
| Head of household | $9,350 | $18,000 |
Personal exemption eliminated
To balance out the increases made to standard deductions in 2018, personal exemptions have been eliminated. Previously, this deduction amounted to $4,050 for an individual and each dependent family member.
An individual filing in 2017 could have taken a personal exemption of $4,050 plus the former standard deduction of $6,350 for a total of $10,400, which is $1,600 less than their new 2018 standard deduction of $12,000.
On the other hand, a family of five in 2017 could have taken five personal exemptions of $4,050 plus the former standard deduction of $12,700 for a total of $32,950, which was $8,950 more than their new 2018 standard deduction of $24,000.
Increase to the child tax credit
Though families may have a lower total deduction from the elimination of the personal exemption, the child tax credit has been increased to help account for this. In 2018, the credit has been doubled from $1,000 to $2,000, with $1,400 potentially refundable. Furthermore, the income phase-out limitations have risen to $400,000 from the former $110,000 for joint filers and $200,000 from the former $75,000 for single filers.
Looking back to the example of that family of five who was only able to claim $24,000 with their standard deduction, they would gain $5,000 back with these credits to be at $29,000 overall.
New small business deduction
Though impacting less of the population than those listed above, a new deduction is now available for small business owners with the Qualified Business Income Deduction (QBID). Owners of sole proprietorships, S corporations, or partnerships can now deduct up to 20 percent of the income earned by their business in 2018. There are several limitations and phase out specifications for this new deduction, so be sure to consider your exact situation before calculating this deduction.
