The United States House of Representatives recently released proposed legislation entitled the “Tax Cuts and Jobs Act.” The proposal contains major changes to individual income taxation, which we summarize below.

Note that this legislation is only proposed; it is not law.

Under this new legislation, the tax brackets would be restructured to the following:

New Brackets Single Head of Household Married Filing Joint
12% $12,200  – $45,000 $18,300 -$67,500 $24,400 – $90,000
25% $45,001 – $200,000 $67,501 – $200,000 $90,001 – $260,000
35% $200,001 – $500,000 $200,001 – $500,000 $260,001 – $1,000,000
39.6% $500,000 and above $500,000 and above $1,000,000 and above

Observation – The current 33% bracket is $191,650 – $416,700 for Single Filers and $233,350 – $416,700 for Married Filing Joint. Individuals in this zone may face a tax increase from the new 35% bracket.

  • New business income rate of 25% on pass-through entities. Professional services firms such as lawyers, accountants, and architects do not qualify for the new rate
  • Standard deduction for individuals $12,200; head of house $18,300; for married couples $24,400
  • Repeal of the personal exemption – currently $4,050 per dependent
  • Child tax credit increased to $1,600 up from $1,000 with a new credit for non-child dependents
    • Phase-out of credit increased to $115,000 for single and $230,000 for married taxpayers
  • Repeal of the adoption credit and electric vehicle credit
  • Expansion of American Opportunity Credit to five years instead of four
  • 529 plans eligible to pay up to $10,000 a year for elementary and high school education
  • The following are removed for education incentives
    • Lifetime learning credit
    • Student loan interest deduction
    • Tuition and fees deduction
    • Teachers $250 education expense deduction
  • Alimony paid to be non-deductible for the payer and non-taxable to the recipient
  • Medical expense deductions on Schedule A eliminated
  • Mortgage interest deduction limited to loans with a value of $500,000 and one residence
  • Property tax deduction capped at $10,000
  • State and local income tax deduction eliminated
  • Tax preparation expense repealed
  • Unreimbursed business expense deduction repealed
  • Charitable contributions maintained

Comment – The reduction in allowable itemized deductions coupled with increased standard deductions would affect New Yorkers more than other U.S. taxpayers.

Planning Opportunity – More than ever it may be advisable for taxpayers to pre-pay state income and property taxes by year-end. Consider paying your 2018 property taxes at the end of 2017 by making a payment based upon your 2017 property tax bills.

All itemized deductions such as charitable contributions, tax preparation fees, and unreimbursed business expenses could potentially be permanently lost under the proposed plan if not front-loaded into 2017.

  • AMT repealed
  • Estate exclusion doubled and repealed after 2023

RDHB CPAs provides its clients with personalized tax, business planning, accounting, auditing, and wealth management services. The items discussed in this report are just a few highlights of the individual changes in the new tax proposal. For more information on the new tax proposal, please contact David Feor, CPA at dfeor@rdhbcpa.com or a member of your RDHB team.