Tax Reform For Individuals

DOIhttp://doi.org/10.1002/jcaf.22349
Date01 July 2018
Published date01 July 2018
IRS
Tax Reform For Individuals
Caroline D. Strobel
The Tax Cuts and Jobs Act,
H.R. 1, which both houses of
Congress passed on December
20, 2017 contains a number of
provisions affecting individual
taxpayers. Unfortunately, all of
these changes affecting individ-
uals are set to expire after
2025. There is currently much
talk in Congress and from the
White House about a second
tax bill, which presumably
would make the tax cuts in this
bill permanent. If Congress
does not act before 2026, the
tax laws governing individuals
would revert to the laws in
effect in 2017. There certainly
will be tax legislation before
then and, whether or not these
provisions are extended, there
will surely be change in the
current law.
MAJOR PROVISIONS
Tax rates for individuals
have been lowered by reducing
the rates (i.e., 15% lowered to
12%) and spreading out the
brackets at the higher rates.
The new maximum rate for
individuals is now 37% which
begins for individuals at
$500,000 of taxable income. A
special bracket will apply for
certain children with unearned
income.
The standard deduction has
been increased for individual
taxpayers to $24,000 for mar-
ried taxpayers ling jointly,
$18,000 for heads of household
and $12,000 for all other indi-
viduals. The additional stan-
dard deduction for elderly and
blind taxpayers has not chan-
ged. All personal exemptions
through 2025 have been
repealed. Withholding rules
have been modied to reect
both of these changes.
PASSTHROUGH INCOME
DEDUCTION
For tax years after 2017
and before 2026, individuals
will be allowed to deduct 20%
of qualied business income
from a partnership, S corpora-
tion, or sole proprietorship. A
taxpayer will also be able to
deduct 20% of qualied real
estate investment trust (REIT)
dividends, qualied cooperative
dividends, and qualied pub-
licly traded partnership income.
Special rules would apply to
specied agricultural or horti-
cultural cooperatives. A deduc-
tion is disallowed for specied
service trades, or businesses
with income above the thresh-
old. This last provision may be
modied by new tax
legislation.
Qualied business
incomemeans the net amount
of qualied items of income,
gain, deduction, and loss with
respect to the qualied trade or
business of the taxpayer. These
items must be effectively con-
nected with the conduct of a
trade or business within the
United States. They do not
include specied investment-
related income, deductions, or
losses. They also do not include
an S corporation shareholders
reasonable compensation,
guaranteed payments, or, to
the extent provided in regula-
tions, payments to a partner
who is acting in a capacity
other than his or her capacity
as a partner.
Specied service trades or
businessesinclude any trade
or business in the elds of
accounting, health, law, con-
sulting, athletics, nancial ser-
vices, brokerage services, or
any business where the princi-
pal asset of the business is the
reputation or skill of one or
more of its employees. The
exclusion from the denition of
a qualied business for speci-
ed service trades or businesses
phases out for a taxpayer with
taxable income in excess of
$157,500 or $315,000 in the
case of a joint return.
© 2018 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22349
114

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