On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” which is being billed as the most sweeping tax legislation reform in 30 years. What do these changes mean to you and your business? We have highlighted some of the changes below. Except where noted, these changes go into effect for the 2018 tax filing year.

Individuals:

• Tax brackets for individuals have widened and the top tax rate has been reduced from 39.6% to 37% for the highest taxpayers
• Standard Deduction is increased as follows:
  • Single $6,500 in 2017 to $12,000 in 2018
  • Head of Household from $9,550 in 2017 to $18,000 in 2018
  • Married Filing Joint from $13,000 in 2017 to $24,000 in 2018
• There are no longer personal exemptions of $4,150 per person.
• Kiddie Tax rules are modified with the taxable income of a child on unearned income being taxed according to the brackets applicable to trusts and estates.
• The capital gains and qualified dividends rates remain generally unchanged at 0%, 15% or 20%, with breakpoints indexed for inflation.
• The alternative minimum tax (AMT) is retained with the exemption amounts increasing.
• The Affordable Care Act (Obamacare) penalty for those not covered by a health plan will be zero after December 31, 2018
• The 3.8% net investment income tax and the 0.9% additional Medicare tax remain intact.
• The child tax credit is increased to $2,000 and the phase out levels are increased to $400,000 for married taxpayers ($200,000 for all other taxpayers)
• The state and local tax and property tax deduction is limited to $10,000 as an itemized deduction.
• You can only deduct mortgage interest on debts up to $750,000. This limit does not apply on any loans acquired before December 15, 2017. The higher limit of $1,000,000 of indebtedness applies in these situations.
• Home equity loan interest is no longer deductible.
• The medical expense threshold is reduced back to 7.5% of adjusted gross income when itemizing deductions.
• There is no longer a deduction for miscellaneous itemized deductions subject to the 2% of AGI floor i.e. unreimbursed employee business expenses, investment expense, job education, tax preparation fees and safe deposit box fees.
• The base estate and gift tax exemption amount doubles from $5 million to $10 million.
• Recharacterization can no longer be used to unwind a Roth conversion.

Businesses:

• Permanent reduction of the C corporation tax rate to a flat 21%
• The corporate alternative minimum tax is repealed.
• For business property placed in service after December 31, 2017, the maximum amount that can be expensed under Section 179 is increased to $1 million.
• Bonus depreciation for qualified assets acquired and placed into service is increased to 100%. The additional depreciation applies for new and used property placed in service after September 27, 2017.
• Luxury automobile depreciation limits are increased.
• New farm equipment can now be depreciated over seven years rather than the previous five-year period.
• The domestic production activities deduction is repealed.
• There is a new 20% deduction for non-corporate taxpayers with qualified business income from pass-throughs such as sole proprietorships, partnerships, limited liability companies and S corporations. This brings the tax rate for some types of businesses more in line with the reduced corporate tax rate.

Estate and Trusts:

• Tax brackets for estates and trusts are 10%, 24%, 35% and 37% with the top rate applicable to income over $12,500

As with all things tax, each individual’s tax situation is unique, and this represents just a few of the changes in the tax bill. If you have any questions about how these changes apply directly to your situation, please call us.

Krista B. Baker, CPA, CFP®

The post The Tax Cuts and Jobs Act appeared first on Baker 3, Inc..