Tax Cuts and Jobs Act

Are you ready for change? NOW is the time to prepare for tax reform, as every taxpayer will be affected by the new legislation beginning in 2018. Will you be a winner? Or a loser? Will your tax return become simplified or more complicated? There is no doubt that 2018 will bring new opportunities for tax savings and tax planning for you and your business. Below is a brief summary of some provisions in the Tax Cuts and Jobs Act. We will be monitoring the progress of this bill as the Internal Revenue Service will begin interpreting the provisions and providing guidance to taxpayers.

Proposed Provisions Affecting Individuals for Tax Year 2018 

  • Tax Rates – Maintains seven tax brackets but lowers the tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The highest current tax rate is 39.6%.
  • Standard Deduction – Almost doubles the standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.
  • Personal Exemptions – Eliminates the personal and dependent exemptions, which is presently $4,150 each.
  • Child Tax Credit – Increases the Child Tax Credit to $2,000 from $1,000 and expands the refundable tax portion of the Child Tax Credit from $1,100 to $1,400.
  • Alternative Minimum Tax – Increases the exemption amount from the Alternative Minimum Tax.
  • Individual Healthcare Mandate – Eliminates the penalty for individuals failing to maintain minimum essential healthcare coverage for years after 12/31/2018.
  • Earned Income Tax Credit – Maintains the Earned Income Tax Credit for low to middle-income wage earners, which can be up to a $6,000 credit for a family with three children.
  • Itemized Deduction for Taxes – Taxpayers who itemize can deduct up to $10,000 in state/local income tax deduction, sales tax deduction and real estate tax deduction.
  • Mortgage Interest – Mortgage interest deduction is capped on new home loans of $750,000.
  • Medical Expense Deduction - Allows a deduction for qualified medical expenses in excess of 7.5% of adjusted gross income.

Proposed Provisions Affecting Business Owners for Tax Year 2018

  • Tax Rates - Lowers the corporate tax rate to 21%. Current rate is 35%.
  • Alternative Minimum Tax - Repeals the corporate AMT.
  • Pass-Through Entities - Allows for a 20% deduction of Qualified Business Income for most businesses.
  • Cash Accounting - Expands the limits on cash accounting and may remove the requirement to track inventory.
  • Direct Expensing - Businesses can fully expense qualified purchases for the next 5 years.