On December 20, 2017, Congress passed (on a party-line basis) the biggest tax reform law in thirty years, one that 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. Most of the changes will go into effect in 2018. Taxpayers should understand that a majority of the tax reform provisions are applicable only through 2025.

Individual Taxation Changes and Considerations

Lower Tax Rates Coming.

There will be seven individual income tax brackets under tax reform. The top individual income tax rate for ordinary income will be 37%.
Tax rates for married individuals filing joint returns and surviving spouses:

If taxable income is:

The tax is:

Not over $19,050

10% of taxable income.

Over $19,050 but not over $77,400

$1,905, plus 12% of the excess over $19,050.

Over $77,400 but not over $165,000

$8,907, plus 22% of the excess over $77,400.

Over $165,000 but not over $315,000

$28,179, plus 24% of the excess over $165,000.

Over $315,000 but not over $400,000

$64,179, plus 32% of the excess over $315,000.

Over $400,000 but not over $600,000

$91,379, plus 35% of the excess over $400,000.

Over $600,000

$161,379, plus 37% of the excess over $600,000.

Tax rates for individuals filing single:1

If taxable income is:

The tax is:

Not over $9,525

10% of your taxable income

Over $9,525 but not over $38,700

$952.50 + 12% of the excess over


Over $38,700 but not over $82,500

$4,453.50 + 22% of the excess over $38,700

Over $82,500 but not over $157,500

$14,089.50 + 24% of the excess over $82,500

Over $157,500 but not over $200,000

$32,089.50 + 32% of the excess over $157,500

Over $200,000 but not over $500,000

$45,689.50 + 35% of the excess over $200,000

Over $500,000

$150,689.50 + 37% of the excess over $500,000

Disappearing or Reduced Deductions, Larger Standard Deduction

Beginning in 2018, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction.

  • 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.

  • Under current rules, alimony payments generally are an above-the line deduction for the payor and included in the income of the payee. Under the new law, beginning in 2019, alimony payments aren't deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2018. For any divorce decree or separation agreement executed prior to 2019, the new law will apply if such agreement is modified after 2018 and the modification expressly provides that the new law applies to the modification.

  • The itemized deduction for charitable contributions won't be chopped. 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.

  • The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018 these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated.

  • The principal residence mortgage interest deduction will be limited to interest on $750,000 of indebtedness, for loans after 2017.

  • Elimination of personal exemptions, the deduction for home equity debt, miscellaneous itemized deductions subject to the 2% floor (e.g., investment advisory fees and tax preparation fees), the Pease rule (i.e., phase-out of itemized deductions), the deduction for casualty losses (except for Federally declared disasters), and moving expenses (except for certain military personnel).

  • Estate, Gift and GST tax exemptions will double to $10 million (expected to be $11.2 million for 2018 with inflation indexing). Thus, for a married couple the combined exemptions would be $22.4 million in 2018.

Some Items Not Changing for Individuals

  • The preferential top rate (i.e., 20%) on capital gains and qualified dividends.

  • Annual exclusion gifts ($15,000 for 2018).

  • The 3.8% net investment income tax is not changing, thus, net investment income (e.g., interest, dividends, capital gains, annuity income, rents, etc.) will be taxable to the extent it exceeds the applicable thresholds (e.g., single taxpayers $200,000, married filing jointly $250,000).

  • A taxpayer’s ability to sell specific lots of securities. The original tax reform bills in the House and Senate would have forced FIFO treatment for the sale of securities (e.g., stocks).

  • Stretch-out distributions for beneficiaries of IRAs and other qualified plans.

  • Rules for excluding gain on the sale of a principal residence.

Business Taxation Changes and Considerations

Lower Tax Rates Coming for Businesses.

The Tax Cuts and Jobs Act will reduce tax rates for “c corporations”, effective for the 2018 tax year. Additionally, other businesses, including those operated as pass-throughs (such as partnerships, limited liability companies taxed as partnerships or s corporations, and s corporations) may see their tax bills cut.

  • The graduated “c corporation” tax rates ranging from 15% to 35% will be reduced to a flat 21% rate.

  • The corporate AMT is fully repealed beginning in 2018.

  • A new like-kind exchange rule limits exchanges to real estate not held primarily for sale.

  • The IRC section 179 deduction will double to $1 million, subject to phase-out.

  • Doubling of bonus depreciation to 100% and expansion to include used property. The effective date is for assets acquired and placed in service after September 27, 2017 and before January 1, 2023.

  • Pass-through entities (e.g., partnerships, s corporations, and sole proprietorships) will be entitled to a 20%qualified business income deduction. The provision is applicable for business owners with income under $157,500 ($315,00 for married filing jointly). In addition, the benefit is subject to phase-out.

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Lincoln Financial Securities Corporation and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

Jane B. Smith, CFP® is a registered representative of Lincoln Financial Securities Corporation

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1 “Your Guide to Tax Brackets in 2018”, The Motley Fool. Accessed January 3, 2018.

This material is for use with the general public and is designed for informational or educational purposes only. It is not intended as tax or investment advice and is not a direct recommendation for your retirement savings. LFS-1982249-010218