1. A single filer with $50,000 in annual adjusted gross income (AGI) and who uses the standard deduction currently.

First, let’s look at a simple tax situation. Under the current tax law, a single filer would be entitled to a $6,500 standard deduction in 2018 and a personal exemption of $4,150, which would leave this taxpayer with taxable income of $39,350. Plugging this in to the current-law 2018 tax brackets shows that this individual would pay $5,491 for the year. Under the GOP’s tax bill, single individuals would get a $12,000 standard deduction, but no more personal exemption, which would lower this person’s taxable income to $38,000. Using the GOP’s new tax brackets, not only would this taxpayer have a lower taxable income, but he or she would be subject to a lower marginal tax rate on most of that income. In fact, the new tax brackets would result in a 2018 federal income tax of $4,370, a savings of $1,121. So it’s fair to say that middle-income taxpayers with simple tax situations like this could save a significant amount of money.

2. A married couple with $100,000 in AGI, no children, $7,000 in annual mortgage interest, $4,000 in charitable contributions, and $3,000 in other itemized deductions.

Now, let’s look at a slightly more complex tax situation. Under current tax law, this couple would have $14,000 in itemizable deductions, which is better than the $13,000 standard deduction to which they would be entitled. They would also get personal exemptions of $4,150 each. This would reduce their taxable income to $77,700. Based on the current tax brackets, the couple would pay $10,676 for the year.

With the new tax plan, the higher standard deduction of $24,000 would make it no longer worth itemizing, and would give this couple a taxable income of $76,000. The new tax brackets would result in taxable income of $8,739, a $1,919 savings.

3. A married couple with $110,000 in AGI, three children, and itemized deductions of $10,000 in mortgage interest, $4,000 in charitable contributions, and $7,000 in state and local property and income taxes.

So far, we’ve looked at taxpayers without kids, so let’s see how the Tax Cuts and Jobs Act could affect families with children.

Under current law, this family would have $21,000 in itemizable deductions, and $20,750 in personal exemptions, which would produce taxable income of $68,250. The current tax brackets would produce an income tax of $9,285. However, they would also get a $1,000 credit for each child, which would reduce their tax owed to $6,285.

The new tax structure would give this family a $24,000 standard deduction but no personal exemptions, for a taxable income of $86,000, which would translate to a federal income tax of $10,799. However, what they lose in personal exemptions will be more than made up by the doubling of the child tax credit to $2,000 per child. This would reduce their taxable income to $4,799, a savings of $1,486.

4. A single taxpayer with $1 million in AGI who rents their home, donates $40,000 to charity, pays $45,000 in state income tax, and has no other itemizable deductions.

So far, we’ve looked at how the new tax bill will affect various middle-income households. However, some of the bill’s critics have called it a “massive tax cut for the rich,” or something similar, so let’s see how it would affect a high-income taxpayer.

Under current tax law, this individual would use $85,000 in itemized deduction (they wouldn’t get a personal exemption), to reduce their taxable income to $915,000. This would result in federal income tax of $317,283.

The new tax structure would allow this taxpayer to deduct their entire charitable contribution, but only $10,000 of their local property taxes, bringing their taxable income to $950,000. The generally lower marginal tax rates would result in a federal income tax of $317,190, which would be a tax cut of just $93. In other words, the three middle-income households would get much bigger tax cuts than a wealthy taxpayer like this.

5. An elderly married couple with assets valued at $30 million, who dies in 2018

Finally, let’s take a look at an estate tax situation. Under current tax law, the first $11.2 million of a couple’s estate’s value ($5.6 million per person) is excluded from taxation, and any amount above this is taxed at a 40% rate. So, if a couple dies in 2018 with $30 million worth of assets, $7.52 million in estate taxes will be due.

The Tax Cuts and Jobs Act doubles the estate tax exclusion, so $22.4 million of this couple’s assets would be exempt, resulting in an estate tax of $3.04 million, saving this couple’s heirs $4.48 million. In this sense, the bill certainly provides a big tax cut to wealthy families.

source: the Mothley Fool

Following are several key tax reform provisions discussed behind closed doors in conference:

#Individual #tax #cuts: In the end, GOP leaders settled on a seven-rate structure, the same as exists now, with lower rates and revised bracket amounts. Ultimately, the top rate was cut from its current level of 39.6% to 37%, as opposed to the 38.5% rate that appeared in the Senate Bill.

#Standard#deduction and personal #exemptions: Along with the individual rate cuts, the standard deduction is effectively doubled to $12,000 for single filers and $24,000 for joint filers. Personal exemptions are completely eliminated.

#Child #tax #Credit: Currently, the child tax credit is only $1,000 per qualified child, but the new law increases it to $2,000, with $1,400 being refundable. This was a sticking point for Senator Marco Rubio (R-FL), who insisted on more flexibility for low-income families.

#Mortgage#interest#deduction: Based on a late change, the deduction for mortgage interest is limited to interest paid on up to $750,000 of acquisition debt, down from its current limit of $1 million. The Senate bill had left the $1 million limit untouched while the House bill imposed a $500,000 threshold.

#Corporate#tax#rates: The top tax rate for corporations drops from 35% to 21%. Both the House and Senate bills featured a top 20% rate, which was endorsed by the White House. The lower rate would take effect in 2018—not 2019 as the Senate bill provided.

Individual AMT: The individual alternative minimum tax (AMT) remains, but the threshold would be tweaked to exclude any taxpayer with income under $500,000 or family below $1 million.

Corporate #AMT: The corporate AMT, which was preserved by the Senate bill, is repealed. This was a critical concession to businesses eligible for the research credit.

#Medical#deductions: Under current law, only medical expenses in excess of 10% adjusted gross income (AGI) can be deducted, up from the previous level of 7.5% of AGI. The final bill reportedly keeps the medical deduction and restores the 7.5%-of-AGI threshold, but only for 2018.

#State and #local#taxes: In another late compromise, a maximum deduction of $10,000 is now reportedly available to taxpayers state and local property taxes or state and local income taxes or sales taxes or a combination. But these concessions aren’t likely to appease taxpayers in states with high taxes.

#Estate#tax#exemption: For 2018, the estate tax exemption can shelter up to $5.6 million of assets from estate tax. This generous exclusion is effectively doubled to $11 million.

#Health#insurance#mandate: The insurance requirement under the Affordable Care Act (ACA), the law known as Obamacare, is abolished.

Finally, the proposed legislation retains other tax breaks that were on the chopping, such as deductions for student loan interest and tax-free private activity bonds used by local governments to build hospitals. The two chambers of Congress are expected to vote on the measure early next week.

From CPA Pracice Advisor

What deductions can I claim under the Senate bill that just passed?

The Senate bill does away with federal deductions for state and local income and sales taxes but allows deductions of up to $10,000 in local property taxes. The legislation originally eliminated federal deduction for all state and local taxes, but the property tax exemption was later added at the insistence of Sen. Susan Collins, R-Maine, who said she was “delighted” about the change.

What about personal deductions?

Like the House bill, the Senate bill nearly doubles the standard deduction level to $12,000 for individuals (up from $6,350) and $24,000 for couples (up from $12,700).

Any other deductions I could claim?

The Senate bill retains the current limit for the home mortgage interest deduction to interest paid on the first $1 million of the loan. (The House bill reduces the limit to $500,000 for new home purchases.) The Senate version also preserves the deduction for medical expenses not covered by insurance (the House bill does not), but ends deductions for moving expenses and tax preparation.

Why does the Senate bill allow deducting medical expenses not covered by insurance?

Because the Senate bill also repeals ObamaCare’s individual mandate, while the House bill does not. If ObamaCare’s mandate is repealed, thousands of people are expected to drop their health insurance, raising the cost for those who decide to keep it.

And the personal exemption?

The Senate and House bills both eliminate the $4,050 personal tax exemption.

Will the tax brackets change at all?

The Senate bill keeps seven tax brackets but reduces them to 10, 12, 22, 24, 32, 35 and 38.5 percent. (The current brackets are 10, 15, 25, 28, 33, 35, and 39.6 percent.) The House measure condenses seven brackets to four: 12, 25, 35 and 39.6 percent.

I own a small business. What would this mean for me?

The Senate bill allows owners of so-called “pass-through” businesses (that is, businesses that aren’t incorporated) to deduct 23 percent of their earnings, and then pay at their personal income tax rate on the remainder. This issue was a key concern of Sens. Ron Johnson, R-Wis., and Steve Daines, R-Mont., both of whom announced this week that they would support the bill.

What about corporate tax rates?

Like the House bill, the Senate bill cuts the current 35 percent rate to 20 percent, but the Senate bill calls for a one-year delay in dropping the rate.

When will tax reform take effect?

President Trump and congressional Republicans have vowed to make tax reform law before the end of the year. If that happens, most of the provisions would come into force on Jan. 1.