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Tax Reform Affects All Taxpayers

Posted by Admin Posted on Feb 20 2018
On December 20, 2017, Congress passed the largest federal tax reform law in more than 30 years.  The reform is commonly called the “Tax Cuts and Jobs Act” (TCJA).  The new law means substantial changes for taxpayers.
The following is a brief summary of some of the more significant changes.  Unless noted, these changes are effective for tax years starting January 1, 2018 through December 31, 2026.
• Individual income tax rates have been reduced by 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
• Capital gains rates will remain the same as 2017
• Standard deduction amounts are nearly doubled:  $24,000 for married filing jointly couples, $18,000 for head of household and $12,000 for single and married couples filing separately
• Personal exemptions are eliminated
• Child tax credits are increased from $1,000 to $2,000, the refundable portion is increased to $1,400, a $500 non-refundable credit is available for qualifying dependents that are not qualifying children and for children over the age of 16; credits start to phase out for taxpayers with AGI in excess of $200,000 for singles & heads of households and $400,000 for joint filers
• Elimination of the individual insurance mandate under the Affordable Care Act – effective for months beginning after December 31, 2018
• Taxpayers who itemize deductions can continue to write off mortgage interest (limited to new mortgages up to $750,000), charitable contributions and up to $10,000 of state and local taxes
• For taxpayers over the age of 70 ½: contributing directly from their IRA to a qualified charity of their choice is a great tax savings strategy
• Elimination of deduction for interest on home equity debt, regardless of when the debt was incurred
• Miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees, unreimbursed employee business expenses and union dues) have been eliminated
• Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
• Expansion of 529 plan distributions to be allowed for elementary & secondary school tuition, of up to $10,000 per student
• Reduction of the adjusted gross income threshold for medical expense deduction to 7.5% - for tax years 2017 and 2018
• Alternative minimum tax (AMT) exemption increased to $109,400 for joint filing couples ($1,000,000 exemption phaseout) and $70,300 for unmarried taxpayers ($500,000 exemption phaseout)
• Elimination of personal casualty and theft loss deduction (with an exception for federally declared disasters)
• Estate and gift tax exemption increased to roughly $11.2 million ($22.4 million for married couples)
• Elimination of graduated tax rates, 21% flat rate for C corporations is enacted
• Elimination of corporate alternative minimum tax (AMT)
• Pass-through entities (such as partnerships, S corporations, LLC’s and sole proprietors) can claim a 20% deduction on qualified domestic earnings, this deduction is not always available to personal service providers or where the principal asset is the reputation/skill of one or more employees or owners
• All meal expenditures are subject to a 50% limitation
• Elimination of the deduction for business-related entertainment expenses
• Interest deductions are capped at 30% of adjusted gross income, small businesses with average gross receipts of $15 million or less for the past three years are exempt
• Net operating losses can be carried forward indefinitely, two-year carryback in general is eliminated
• Expensing of qualifying property under section 179 increased to $1 million and the phaseout threshold is increased to $2.5 million
• Bonus depreciation under section 168(k) has been extended through December 31, 2025
• Property qualifying for bonus depreciation expanded to include used property not acquired from a related party
• Deferral of capital gain through like kind exchange has been eliminated except with real estate property used in trade or business
• Utilization of cash method of accounting is expanded to taxpayers with three-year average annual gross receipts under $25 million
• Producers and resellers of inventory with three-year average annual gross receipts under $25 million are exempt from uniform capitalization rules under section 263A
Please note that additional rules and limitations may apply.  The above are just some of the changes implemented by the TCJA that could impact your tax situation.  If you have any questions or would like to discuss how you might be affected, please contact us at 734-662-2522.