The tax bill signed into law at the end of 2017 changed the tax landscape for almost everyone, whether you have a modest income or are wealthy, whether you’re a business owner or an employee, whether you’ve been itemizing or taking the standard deduction. Below are some of the most significant changes.
Taxes for Individuals
The big news here is bracket changes. They’ve changed and are generally lower:
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
- 37% (over $500,000; over $600,000 for couples)
Some other key individual changes:
- The standard deduction nearly doubles, to $12,000 for singles and $24,000 for couples. This means fewer people will find it advantageous to itemize.
- All state and local tax deductions are limited to $10,000.
- The mortgage interest deduction is limited to payments on $750,000 of debt. (The old $1 million limit will be grandfathered in for homes purchased before Dec. 15, 2017.)
- The deduction for home equity loan interest is gone.
- The alternative minimum tax is still in existence, but the exemption is increased, meaning fewer will be paying it.
- The child tax credit is doubled to $2,000, with a refundable portion up to $1,400.
- The estate tax is still with us, but the exemptions have been doubled. The number of families that will be subject to the federal estate tax is now vanishingly small.
- The individual mandate required under the Affordable Care Act has been eliminated —but only starting in 2019. It’s still required for 2018.
Taxes for Businesses
- The tax rate has been lowered from 35% to 21%.
- The corporate AMT is eliminated.
- The limit on Section 179 expensing is increased to $1 million.
- The new law limits the deduction for net operating losses to 80% of taxable income.
- Instead of being an immediate deduction, research and development expenditures will need to be written off gradually. This doesn’t kick in immediately, however.
- “Pass-through” companies get a 20% reduction, but there is an income phase out.
This is just the beginning, and there may be additional federal guidance and legislation in the coming months to clarify and modify the current provisions.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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