Tax Cuts and Jobs Act: The Effect on Individual Taxpayers

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, made sweeping changes to individual income taxation. The act reduced marginal tax rates across most brackets, lowering the top rate from 39.6% to 37%. It nearly doubled the standard deduction—to $12,000 for single filers and $24,000 for married filing jointly—making itemizing less advantageous for a significant portion of taxpayers. The personal exemption was eliminated. The child tax credit was doubled to $2,000 per qualifying child, with income phase-out thresholds raised substantially. The alternative minimum tax (AMT) exemption was significantly increased, reducing the number of taxpayers subject to it. Many TCJA individual provisions are temporary and scheduled to sunset after 2025 absent congressional action, making ongoing awareness of potential changes essential. Accounting and tax professionals need a thorough understanding of TCJA's impact to serve clients effectively. Aurora Training Advantage's accounting webinars provide up-to-date tax education on individual taxpayer planning and compliance.

The Tax Cuts and Jobs Act significantly restructured itemized deductions, making the standard deduction more attractive for most taxpayers while capping or eliminating several previously common itemizations. The state and local tax (SALT) deduction was capped at $10,000—a significant change for taxpayers in high-tax states who previously deducted far more. The mortgage interest deduction was limited to debt up to $750,000 (down from $1 million). Miscellaneous itemized deductions subject to the 2% floor—including unreimbursed employee expenses, tax preparation fees, and investment advisory fees—were eliminated entirely. Home equity loan interest deductions were restricted to debt used for home acquisition or improvement. Casualty and theft loss deductions were narrowed to federally declared disasters only. The Pease limitation reducing itemized deductions for high earners was also repealed. These changes collectively shifted millions of taxpayers to the standard deduction. Aurora Training Advantage's accounting webinars help tax professionals navigate TCJA's deduction changes and advise clients on optimal strategies.

One of the most significant TCJA provisions for individual taxpayers with business interests is the Section 199A qualified business income (QBI) deduction. This allows eligible taxpayers who own pass-through entities—sole proprietorships, partnerships, S corporations, and some trusts—to deduct up to 20% of their qualified business income from taxable income. The deduction is subject to complex limitations: for higher-income taxpayers, W-2 wage limits and unadjusted basis thresholds apply; specified service trades or businesses (SSTBs) face additional phase-out restrictions above income thresholds. The net result is a substantial tax benefit for qualifying business owners, particularly those in capital-intensive industries with significant payroll. Proper planning and entity structure analysis became critical for small business owners after TCJA. CPAs and tax advisors need detailed knowledge of the QBI rules to optimize outcomes for individual clients with pass-through income. Aurora Training Advantage's accounting webinars provide in-depth coverage of TCJA's pass-through provisions and planning strategies.

The Tax Cuts and Jobs Act dramatically increased the federal estate and gift tax exemption. The unified credit exemption was doubled from approximately $5.49 million to $11.18 million per individual (indexed for inflation), reaching over $12 million by 2022. For married couples, portability allows the combined exemption to approach $24 million or more, shielding most estates from federal estate tax entirely. The top estate tax rate remained at 40%. The generation-skipping transfer (GST) tax exemption was similarly doubled. These changes significantly reduced the number of estates subject to federal estate tax, shifting estate planning priorities away from tax minimization toward income tax basis optimization and wealth transfer strategies. However, like other individual TCJA provisions, the increased exemption is scheduled to sunset after 2025, reverting to pre-TCJA levels absent new legislation—making proactive planning essential for high-net-worth individuals. Aurora Training Advantage's accounting webinars keep tax professionals current on estate and gift tax planning in the post-TCJA environment.

The Tax Cuts and Jobs Act created both planning opportunities and challenges for individual taxpayers. With TCJA provisions potentially sunsetting after 2025, proactive strategies are increasingly important. Taxpayers in high-tax states should analyze whether the $10,000 SALT cap makes itemizing worthwhile or whether the standard deduction is more advantageous. Bunching deductible expenses—concentrating charitable contributions, medical costs, and other deductions into alternating years—helps surpass the standard deduction threshold strategically. Pass-through business owners should review entity structure and compensation strategies to maximize the QBI deduction. High-net-worth individuals should consider accelerating wealth transfers while the elevated gift and estate exemptions remain in effect. Roth conversion strategies may be attractive given the current lower individual rates. Business owners should evaluate the interplay between individual and corporate tax provisions. Staying informed about potential legislative changes is essential. Aurora Training Advantage's accounting webinars provide tax professionals with the continuing education needed to deliver current, compliant, and strategic TCJA-informed advice to individual clients.