The recently enacted Tax Cuts and Jobs Act (TTCJA) is a sweeping tax package. Here's an overview of some of the more important individual tax and business tax changes in the new law.
Tax Rates. Generally, the rates decreased slightly and the thresholds were widened, providing overall tax decreases
AMT. The amount that is exempt from AMT was increased, providing a tax decrease
New Deduction for "Qualified Business Income". New 20% deduction on the receipt of trade or business pass-through net income, subject to limitations based on taxpayer’s taxable income and W-2 wages paid by the business
Expanded Child Tax Credit. Increased to $22,000 per child (the adjusted gross income phase out now $400,000 MFJ)
Various Changes to Deductions. Higher standard deductions ($24,000 MFJ) and reduction of various itemized deductions will result in more taxpayers using the standard deduction
- Personal exemptions are gone
- State and local taxes and property taxes capped at $110,000 (combined deduction limit)
- Mortgage interest is only deductible on principal or second homes for loan amounts up to $750,000. The new lower limit doesn’t apply to homes purchased before 12/15/2017 as long as the loan is not refinanced. Interest on home equity lines of credit is no longer deductible.
- 2% miscellaneous deductions no longer exist (investment advisor fees, tax preparation fees, employee business expenses)
- No deduction for alimony payments for divorce or separation agreements executed after 12/31/2018
Estate Tax Exemption. Lifetime estate and gift exemption doubled from $5,600,000 per person to $11,200,000 per person
Tax Rates. The corporate tax rate has been reduced to a flat 21%
Carried Interest. New 3-year holding period to obtain long term capital gain treatment
Net Operating Loss ("NOL") deduction modified. No more carrybacks and only allowed to offset 80% of taxable income
Deductibility of Entertainment Expenses. Business entertainment expenses are no longer deductible beginning 1/11/2018
Certain Employee Fringe Benefits No Longer Deductible. Employers can no longer deduct transit passes or parking
Fixed Assets. Increased 179 limits and 100% bonus depreciation available
DPAD Repealed. The Domestic Production Activities Deduction is no longer available
Like-Kind Exchange Treatment Limited to Real Estate. Personal property no longer eligible for 1031 exchanges
New Credit for Employer Paid FMLA. New credit available if you pay at least 50% of normal wages for employees on FMLA
Accounting for Inventories. For taxpayers with less than $25M in gross receipts, inventory may be expensed as non-incidental materials or supplies. Further, taxpayers meeting the gross receipts test are also exempted from UNICAP rules under 263A.
As you can see from this overview, the new law affects many areas of taxation and this is only a very brief summary. If you wish to discuss the impact of the law on your particular situation, please give us a call.