The Tax Cuts and Jobs Act of 2017 and Its Impact, 0918 SCBJ, SC Lawyer, September 2018, #32

Author:Anthony Masino, J.
Position::Vol. 30 Issue 2 Pg. 32
 
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The Tax Cuts and Jobs Act of 2017 and Its Impact

Vol. 30 Issue 2 Pg. 32

South Carolina BAR Journal

September, 2018

Anthony Masino, J.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (the "Act"). The Act is the first major substantive change to the Internal Revenue Code (the "IRC") in the last 30 years. The stated intent of the Act is to spur economic growth through, among other things, a lowering of individual and corporate income taxes and moving the U.S. to a territorial system of business taxation. To accomplish those goals, the Act has made significant changes to almost every major category of taxes, including but not limited to: individual income taxes; estate, gift and generation skipping taxes; and domestic and international corporate income taxes. The proximity of the Act's passage to year-end resulted in a time crunch to read, understand and implement the Act for taxpayers. The complexity in regards to many of the Act's substantive changes has taxpayers, businesses and practitioners anxiously awaiting the IRS to release technical guidance for further clarification.

The Act modifies and implements major restrictions to the federal tax system, with changes that affect many areas of the tax law. The highlights include: • reduced rates for individuals and corporations,

• altering many of the itemized deductions that federal individual income taxpayers utilized,

• the removal of personal and dependency exemptions for individuals,

• a higher standard deduction for each filing status, and

• a new deduction for qualified business income from pass-through entities.

This article discusses the major tax reforms and the impacts they will have on the various types of taxpayers and legal practices from business formation to family l aw. Because the bulk of the Act's changes take effect on or after January 1, 2018, attorneys should avoid waiting until year-end to familiarize themselves with the potential impacts to their clients and to their practices. This article serves as a general and non-exhaustive summary of the law, and neither the author nor those affiliated with SC Lawyer intend to give, nor should this article be interpreted as giving, tax advice. Each individual's tax situation is different. Please consult your tax advisor for customized interpretations, applicability and support.

Major individual taxation reform

Individual income tax reforms will impact taxpayers in various ways. Major changes have been made to the tax rates, thresholds, deductions for and from adjusted gross income (AGI), and tax credits.

Individual Income Tax Rates: The Act made significant changes to the individual income tax brackets beginning in 2018. While the number of tax rate brackets remained the same (7), individual rates were lowered and income thresholds between brackets were increased slightly. Previously tax rate brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Starting in 2018, the tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. As an example, a comparison of 2017 individual tax rates to 2018 individual tax rates for taxpayers in the "Single" filing status is below.

Personal Exemptions: Starting in 2018, individual taxpayers will no longer receive an annual personal exemption for themselves and each qualifying dependent. In 2017, taxpayers received $4,050 per qualifying exemption. The Act suspended the use of personal exemptions through 2025.

2017 Filing Status–Single
Tax Rate Taxable Income
10.00% $0-9,325
15.00% 9,326-37,950
25.00% 37,951-91,900
28.00% 91,901-191,650
33.00% 190,651-416,700
35.00% 416,701-418,400
39.60% over $418,400
Standard Deduction: Historically, taxpayers were eligible to take either the standard deduction or itemized deductions. The bulk of taxpayers utilize the standard deduction. In 2017, the standard deduction for a filing status of Single or Married Filing Separately was $6,350, $12,700 for Married Filing Jointly and $9,350 for Head of Household. Due to the suspension of personal exemptions, starting in 2018 the standard deduction will be $12,000 for a filing status of Single or Married Filing Separately, $18,000 for Head of Household and $24,000 for Married Filing Jointly. Moving Expenses: Previously, taxpayers were allowed a deduction for adjusted gross income for eligible expenses related to a qualifying move. The Act suspends this deduction through tax year 2025 except for members of the United States military pursuant to a military order. Kiddie Tax: A child's investment income (passive income) in excess of certain thresholds has historically been taxed at the parent's tax rate. Beginning in 2018, the parent's tax rate will no longer be a factor. Instead a child's investment income will be taxed at the tax rates that apply to estates and trusts which have significantly lower thresholds between tax brackets. The highest tax bracket of 37% at the individual rate kicks in after $500,000, while the highest tax bracket for estates and trusts, 37%, kicks in after $12,500.

2018 Filing Status–Single
Tax Rate Taxable Income
10.00% $0-9,525
12.00% $9,526-38,700
22.00% $38,701-82,500
24.00%
...

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