Individual Highlights of the Tax Year 2024 Effects of the 2017 TCJA

Protax reminds taxpayers of the Individual Highlights of the Tax Year 2024 Effects of the 2017 TCJA (due to sunset on January 1, 2026) passed by ex-president Trump on December 22, 2017 that became effective January 1., 2018 and affected the Standard Deduction, tax brackets, the SALT Limitation on Itemized Deductions and a lot more…

The tax reform 2017 TCJA passed at the end of 2017 runs to about 70,000 words. It’s a large and complicated piece of legislation, and we can look forward to additional guidance and clarifications.

The 2017 TCJA.  Has significant impacts on tax years 2018 through 2025 and is due to sunset effective January 1, 2026.  For now, here are summaries of some of the key provisions affecting 2023 and 2024:

Key changes for individuals

Standard deduction amount increased.  For 2024, the standard deduction amount has been significantly increased for all filers, as noted below. Some taxpayers who previously itemized their deductions may no longer find that necessary.

  • Single or married filing separately: $14,600 for 2024, for 2023 $13,850.
  • Married filing jointly or qualifying widow(er): $29,200 for 2024, for 2023 $27,700.
  • Head of household: $21,900 for 2024, for 2023 $20,800.

Marginal rates.  For 2024.  The top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly). The other rates are:

  • 35% for incomes over $243,725 ($487,450 for married couples filing jointly).
  • 32% for incomes over $191,950 ($383,900 for married couples filing jointly).
  • 24% for incomes over $100,525 ($201,050 for married couples filing jointly).
  • 22% for incomes over $47,150 ($94,300 for married couples filing jointly).
  • 12% for incomes over $11,600 ($23,200 for married couples filing jointly).
  • The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).

Foreign Earned Income Exclusion.  For 2024 under § 911 is $126,500, increased from $120,000 for tax year 2023.  The Housing Cap is for 2024 $37,950 versus $36,000 for 2023 and the Base, or Housing Norm is for 2024 $20,240 versus $19,200 for 2023.

Expatriation to Avoid Tax.  For 2024, under § 877A(g)(1)(A), unless an exception under § 877A(g)(1)(B) applies, an individual is a covered expatriate if the individual’s “average annual net income tax” under § 877(a)(2)(A) for the five taxable years ending before the expatriation date is more than $201,000.  Or net worth is under $2 million.

Tax Responsibilities of Expatriation. For 2024, the amount that would be includible in the gross income of a covered expatriate by reason of § 877A(a)(1) is reduced (but not below zero) by $866,000 pursuant to § 877A(a)(3).

Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.

The Annual Exclusion for Gifts.  For 2024 increases to $18,000, increased from $17,000 for calendar year 2023.

Deduction for personal exemptions suspended.  For 2018 through 2025, you can’t claim a personal exemption deduction for yourself, your spouse or your dependents.

Changes to deductions.  Those who still will be itemizing should note the following changes and plan accordingly:

  • Your itemized deductions are no longer limited if your adjusted gross income is over a certain amount.
  • You can deduct the part of your medical and dental expenses that is more than 7.5 percent of your AGI.
  • Your deduction of state and local income, sales and property taxes is limited to a combined total of $10,000 ($5,000 if married filing separately).
  • You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2 percent of your AGI floor. You may still deduct certain other items on Schedule A, such as gambling losses.
  • No more deductions for tax preparation fees or investment expenses, including investment management fees.
  • For indebtedness incurred after Dec.15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 of home acquisition indebtedness. This new limit doesn’t apply if you had a binding contract to close on a home after Dec. 15, 2017, and closed on or before April 1, 2018, and the prior limit would apply.
  • You can no longer deduct interest on home equity indebtedness, which means indebtedness ”not” incurred for the purpose of buying, building or substantially improving the qualified residence secured by the indebtedness.
  • The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your AGI.

Children and dependents.  The law made some significant changes here.

Child tax credit and additional child tax credit.  For 2023, the maximum credit increased to $2,000 per qualifying child. The maximum additional child tax credit increased to $1,600. In addition, the income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).

Credit for other dependents.  A new credit of up to $500 is available for each of your dependents who does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).

Marriage.  Alimony and separate maintenance payments are no longer deductible for any agreement executed or modified after Dec. 31, 2018.

What isn’t changing. The new tax law changed a lot, but not everything. The IRS has noted that the following provisions and numbers remain the same. For tax year 2018:

  • The annual exclusion for gifts is $17,000.
  • The monthly limitation for the qualified transportation fringe benefit is $300, as is the monthly limitation for qualified parking.
  • The AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $160,000.

Social Security.  Not related to tax reform changes, but still important to individuals and businesses, is the decision to give Social Security recipients a 5.2 percent cost-of-living raise in 2023. Also changed is the maximum taxable amount subject to Social Security tax. This number will increase to $160,200 from $147,000. The tax rate itself is unchanged: 7.65 percent each for employees and employers and 15.30 percent for those who are self-employed.

Key changes for businesses:

Based on the kind of business you run, you may see significant changes under the new laws.

Pass-through provisions.  Many owners of sole proprietorships, partnerships, trusts and S corporations may be eligible for a new deduction — referred to as the Qualified Business Income Deduction — allowing them to deduct up to 20 percent of their qualified business income.

Meals and entertainment. The new law generally eliminated the deduction for any expenses related to activities considered entertainment, amusement or recreation. However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant.

Temporary 100 percent expensing.  The new law temporarily allows 100 percent expensing for business property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The 100 percent allowance generally decreases by 20 percent per year in taxable years beginning after 2022 and expires Jan. 1, 2027.

Expensing depreciable business assets.  The law increased the maximum deduction to $1 million and increased the phase-out threshold to $2.5 million. It also modifies the definition of section 179 property to allow the taxpayer to elect to include certain improvements made to nonresidential real property.

New employer credit for paid family and medical leave.  The Tax Cuts and Jobs Act added a new tax credit for employers that offer paid family and medical leave to their employees. The credit applies to wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020.

Opportunity Zones.  Investments in Opportunity Zones provide tax benefits to investors. Investors can elect to temporarily defer tax on capital gains that are reinvested in a Qualified Opportunity Fund (QOF). The tax on the gain can be deferred until the earlier of the date on which the QOF investment is sold or exchanged, or Dec. 31, 2026.

Sexual harassment. This provision did not get a lot of attention, but the new law makes it clear that no deduction is allowed for certain payments made in sexual harassment or sexual abuse cases.

What’s the bottom line?

This isn’t everything you need to know, of course. There are a lot of details and additional guidance. The key is to be proactive and speak to us about withholding adjustments and other tax planning issues in the new year.

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