Subscribe

Recent Posts:

---

Tax Cuts and Jobs Act - How Will the New Tax Law Effect Your?

---

Charitable Planning through the Use of Donor Advised Funds

---

The Ins & Outs of the Home Office Deduction

---

Tax aspects of Long-Term Medical Expenses

---

How to Reduce your Self-Employment Tax

---

Take Your RMD Before It's Too Late!

---

Business Vehicles - Tax Srategies

---

Plan Now to Save on Taxes Later

---

View All

Tax Cuts and Jobs Act - How Will the New Tax Law Effect Your?

Late last week, the President signed into law the biggest tax reform 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. Following is a brief description of some of the more significant provisions.

Lower tax rates coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as passthroughs, such as partnerships, may see their tax bills cut.

• Individuals are subject to income tax on “ordinary income,” such as compensation, and most retirement and interest income, at increasing rates that apply to different ranges of income depending on their filing status (single; married filing jointly, including surviving spouse; married filing separately; and head of household). Currently those rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Beginning with the 2018 tax year and continuing through 2025, there will still be seven tax brackets for individuals, but their percentage rates will change to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• A substantial tax benefit to individuals with pass through income: The deduction is 20% of your “qualified business income (QBI)” from a partnership, S corporation, or sole proprietorship. QBI is defined as the net amount of items of income, gain, deduction, and loss with respect to your trade or business.

For taxpayers with taxable income above $157,500 ($315,000 for joint filers), an exclusion from QBI of income from “specified service” trades or businesses is phased in. These are trades or businesses involving the performance of services in the fields of health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

• Under pre-Act law, corporations are subject to graduated tax rates of 15% (for taxable income of $0-$50,000), 25% (for taxable income of $50,001-$75,000), 34% (for taxable income of $75,001-$10,000,000), and 35% (for taxable income over $10,000,000). Personal service corporations pay tax on their entire taxable income at the rate of 35%. For tax years beginning after Dec. 31, 2017, the corporate tax rate is a flat 21% rate.

Changes in deductions. Beginning next year, the Tax Cuts and Jobs Act will modify many popular tax deductions and credits.

• For tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, the deduction for personal exemptions is suspended.

•       Starting in 2018, the child tax credit increase to $2,000 per qualifying child under 17. It also allows a new $500 credit (per dependent) for any of your dependents who are not qualifying children under 17. There is no age limit for the $500 credit, but the tax tests for dependency must be met. The Act also substantially increases the “phase-out” thresholds for the credit. Starting in 2018, the total credit amount allowed to a married couple filing jointly is reduced by $50 for every $1,000 (or part of a $1,000) by which their AGI exceeds $400,000 (up from the pre-Act threshold of $110,000). The threshold is $200,000 for all other taxpayers. So, if you were previously prohibited from taking the credit because your AGI was too high, you may now be eligible to claim the credit.

•       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.

•       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.

•       The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year.

•       Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after Dec. 31, 2017, such swaps will be possible only if they involve real estate that isn't held primarily for sale.

•       For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation     requirements are met. But under the new law, for amounts paid or incurred after Dec. 31, 2017, there's no deduction for such expenses.

•       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, 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 2017.

•       The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses.

•       Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017.

Other Provisions

• For months beginning after December 31, 2018, no shared responsibility payment will be required, nor will there be any penalty imposed for failing to maintain minimum essential coverage.
• The basic exclusion amount is increased from $5 million to $10 million for estates of decedents dying and gifts made after 2017, and before 2026

Please keep in mind that the above only described some of the provisions of the new tax law. If you would like more details about any aspect of how the new law may affect you, please do not hesitate to contact us.