Congress, after three decades and a few last-minute procedural errors, passed major tax reform! The Tax Cut and Jobs Act of 2017 has been passed by both the House and the Senate and is on the way to the President’s desk. As President Trump has heavily touted this bill, his final signature is a sure thing.
Here are a few of the major changes instituted by this bill:
Lower Tax Rates – The individual tax brackets now allow for more income to be taxed at the lower rates and provide a lower top rate of 37%. Please see the attached for the full brackets.
Standard Deduction and Exemptions – The standard deduction is doubled ($24,000 for joint filers, and $12,000 for single filers). Exemptions are effectively repealed.
Child and Family Tax Credit – The child and family tax credit now provides for $2,000 per qualifying child and $500 for non-child dependents. This credit is not phased out until $400,000 of income for joint filers and $200,000 of income for single filers. $1,400 of the credit for qualifying children will be refundable.
Itemized Deductions – Congress overhauled itemized deductions. Congress suspended all 2% miscellaneous itemized deductions through 2025, including the deductions for unreimbursed employee expenses, tax preparation expenses, and numerous others. The deduction for state and local income taxes is now limited to $10,000 per year. Lastly, the overall limitation on itemized deductions has been removed.
Individual Mandate – Congress repealed penalty on individuals for failure to obtain health insurance, effective January 2019. Applicable large employers, however, are still subject to the employer mandate.
New S Corporation and Partnership 20% Deduction – A new 20% deduction is available for some s corporations and partnerships. This is subject to numerous limitations and will only be against “qualified business income”.
Corporate Rate – All income from C corporations, including personal service corporations, will be subject to a flat 21% tax rate.
Increased First-Year Expensing – Beginning with assets placed in service after September 27, 2017, 100% of the cost of new and used qualifying assets, excluding real property, may be expensed in the first year (“100% Bonus Depreciation”). Alternatively, a business may elect to apply to expense under Section 179 up to $1 million of qualifying assets. Either way, businesses are able to expense the full cost of qualifying property in the first year.
Like-Kind Exchanges – The tax-deferred treatment of like-kind exchanges is now limited to only real property exchanges. All personal property exchanges, including business-for-business asset exchanges and vehicle trade-ins, are now ineligible for this preferential tax treatment.
Entertainment Expenses – All meals, including those provided on employer premises, are only 50% deductible. Entertainment expenses, including tickets to sporting events or club expenses, are not deductible.
If you care to delve into the details regarding the domestic tax changes, please see the attached charts. Otherwise, please let us know if you have any questions!