The Tax Cuts and Jobs Act passed both the House and Senate on December 20th and is expected to be signed by the President in the upcoming weeks. There are substantial changes for both businesses and individuals. The following summary highlights some of the key changes. Unless otherwise noted, all are effective January 1, 2018.
Individual Income Tax
- The seven tax rates are reduced to: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- The income brackets associated with each rate are modified.
- The standard deduction is increased to $12,000 (single) and $24,000 (MFJ)
- Personal exemptions are repealed
- Out-of-pocket medical expenses will be subject to a lower 7.5% AGI threshold for 2017 & 2018
- Mortgage interest deduction limited to interest on $750,000 of acquisition debt; no equity debt
- State & Local income tax, sales tax, & property tax limited to $10,000 in the aggregate
- Miscellaneous itemized deductions suspended
- Increase AMT exemption and exemption phase-outs
- Overall limitation on itemized deductions suspended
- Child tax credit increased to $2,000 with increased phase-out range
- C-Corporation income tax rate reduced to a flat 21%. No special rate for personal service corporations.
- Corporate AMT repealed
- Cash method of accounting gross receipts threshold increased to $25 million
- Section 179 expensing increased to $1 million with phase-out increased to $2.5 million
- 100% bonus depreciation for property placed in service from 9/27/17 to 1/1/23
- Increased luxury auto depreciation limits
- Limitation on deductibility of business interest for those businesses with gross receipts in excess of $25 million
- NOL carrybacks repealed with indefinite carryforward; NOLs limited to 80% of taxable income
- Like-kind exchanges limited real property exchanges
- Deductions for entertainment expenses are disallowed. Deductions for meals provided on the employer’s premises are limited.
- Pass-through entities may receive a 20% deduction of qualified business income. The deduction for specified service businesses are subject to income and wage limitations
There are many more provisions in the bill which could affect your tax situation. Please consult your SDK tax expert to discuss how tax reform may affect you.