The new tax reform law which was enacted on December 22, 2017, and commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years. Nearly everything in the TCJA went into effect on January 1, 2018. It has both good and bad news for taxpayers.
Now, many months later, we are just beginning to get guidance from the IRS regarding various aspects of the new law. Hopefully, this will continue. Some technical corrections from Congress are also needed.
Below are highlights of some of the most significant changes affecting individuals and businesses taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.
Remember that this is just a brief overview of some of the most significant provisions of the TCJA. There are additional rules and limits that apply as well as additional provisions.
Highlights of the Tax Cuts and Jobs Act
If you have any questions regarding how this new tax law may affect you and/or your business, please do not hesitate to contact us. Or, better yet, we could prepare a tax projection for you for 2018 using the tax law changes and new tax rates. This would be an opportunity for you to do some tax planning for 2018 and future years.
It would also be a good time to look into whether federal tax withholdings should be adjusted on your paychecks. There is a Withholding Calculator on the IRS website that can be used to do a “paycheck checkup” to see if too little or too much tax is being withheld from your wages. We can also assist you with that computation. Any changes to be made would require submitting a new Form W-4 to your employer.
We can be reached at 812-663-7567 or 800-676-7567. We look forward to hearing from you.
- Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% - through 2025
- Near doubling the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) – through 2025
- Elimination of personal exemptions – through 2025
- Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit – through 2025
- Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty – effective for months beginning after December 31, 2018
- Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes – for 2017 and 2018
- New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) – through 2025
- Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions – through 2025
- Elimination of the deduction for interest on home equity debt – through 2025
- Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) – through 2025
- Elimination of miscellaneous itemized deductions subject to the 2% floor ( such as certain investment expenses, professional fees and unreimbursed employee business expenses) – through 2025
- Elimination of the AGI-based reduction of certain itemized deductions – through 2025
- Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) – through 2025
- Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
- AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers – through 2025
- Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) – through 2025
- For children who have unearned income and are subject to the kiddie tax, they must file their own tax return and income will be taxed at trust rates.
- Replacement of graduated corporate tax rates ranging from15% to 35% with a flat corporate rate of 21%
- Repeal of the 20% corporate AMT
- New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships – through 2025
- Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets – effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
- Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
- Other enhancements to depreciation-related deductions
- New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
- New limits on net operating loss (NOL) deductions
- Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction – effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018 for C corporation taxpayers.
- New rule limiting like-kind exchanges to real property that is not held primarily for sale
- New tax credit for employer-paid family and medical leave – through 2019
- New limitations on excessive employee compensation
- New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation
- Taxpayers whose average annual gross receipts for the three prior years are less than $25million may now use the cash method of accounting
- The uniform capitalization rules of Section 263A for inventory are no longer required for businesses under the $25 million threshold referred to above.