Congress is enacting the largest tax reform law in 30 years. It will make fundamental changes in the way you, your family, and your business calculate your federal income tax bill and the amount of federal tax you will pay. However, many of the individual provisions of the bill expire in 2025.

Important Changes Affecting Individuals

Taxpayer Favorable

  • The law retains seven tax brackets ranging from 10% to 37% through 2025, with a 0% to 4% point reduction
  • Near doubling of the standard deduction to $24,000 for married couples, $18,000 for heads of households, and $12,000 for single or married filing separate, through 2025
  • Doubling of the child tax credit to $2,000 through 2025
  • Alternative Minimum Tax (AMT) exemption increase to $109,400 for joint filers, $70,300 for single or head of household, and $54,700 for married filing separate
  • Expansion of tax-free Section 529 plan distributions to include those paid for elementary and secondary school expenses up to $10,000 per student per year
For those who itemize deductions:
  • For those who itemize, reduction of the AGI threshold (to 7.5% of AGI) for deductible medical expenses for 2017 and 2018
  • Elimination of the AGI-based reduction of certain itemized deductions through 2025
Taxpayer Unfavorable
  • Elimination of personal exemptions
For those who itemize deductions:
  • $10,000 limit on the deduction for state and local taxes through 2025 ($5,000 for married filing separately)
  • Reduction of the mortgage debt limit to $750,000 ($375,000 married filing separate) for the home mortgage interest deduction through 2025
  • Eliminates the deduction for interest on home equity debt through 2026
  • Eliminates the personal casualty and theft loss deduction through 2025, exceptions for federally declared disasters
  • Eliminates miscellaneous itemized deductions subject to the 2% floor (e.g. tax preparation fees, investment broker fees)

Additional Planning Opportunities

State and Local Tax Deductions: Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes

  • Planning Opportunity: To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than December 31, 3017, rather than on the 2018 due date. But don’t prepay in 2017 a state income tax bill that will be imposed next year, Congress says a prepayment of 2018 state income taxes will not be deductible in 2017.
Charitable Contributions: The itemized deduction for charitable contributions won’t be eliminated. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions.
  • Planning Opportunity: If you fall into this category, consider accelerating some charitable giving into 2017.
Medical Expenses: The new law temporarily boosts itemized deductions for medical expenses.
  • Planning Opportunity: Consider accelerating “discretionary” medical expenses into this year. For example, before the end of the year, get new glasses or contacts or see if you can squeeze in any expensive dental work such as an implant.
AMT Exemption: The new laws substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year.
  • Planning Opportunity: If you hold any ISOs, it may be wise to postpone exercising them until next year. And, for various deductions, e.g., depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you won’t be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.
Business Expenses: The new law suspends the deduction for employee business expenses paid after 2017.
  • Planning Opportunity: Determine whether paying additional employee business expenses in 2017 that you would otherwise pay in 2018 would provide you with an additional 2017 tax benefit. Also, this would be the time to talk to your employer about changing your compensation arrangement.