Matthew Frankel

The Motley Fool

Congressional GOP leaders have passed a tax cut plan and it could have a significant impact on your federal income tax bill in 2018 and beyond.

To give you a sense of how your taxes could be affected, here are five situations and how the new tax bill could affect each one.

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 into 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.

Every situation is different, and there are plenty of tax changes

Keep in mind that every tax situation is different, and that there are too many potential variables that could affect someone's tax bill to discuss every situation here. The goal here is to give you a sense of the overall effect of the tax bill, but to be clear, it makes many other changes that could affect you.

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