In December 2017 the U.S. government passed the Tax Cuts and Jobs Act which is the most extensive tax reform law to be passed in more than 30 years. Below are some of the changes that will have an impact on your bottom line. Please contact us if you have questions on how the new law will impact you.
|Rate||For Unmarried Individuals, Taxable Income Over||For Married Individuals Filing Joint Returns, Taxable Income Over||For Heads of Households, Taxable Income Over|
The standard deduction has been increased to $24,000 for married filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. These amounts will be adjusted for inflation beginning after 2018.
Personal exemptions for yourself and dependents have been suspended.
Itemized deduction rules have changed; The overall limitations on itemized deductions ("Pease" limitations) have been suspended. Personal property tax along with sales tax deductions are limited to $10,000 per year. Additionally, mortgage interest will be limited to the amount of indebtedness on a qualified residence of up to $750,000 on all new mortgage loans incurred after December 15, 2017. The deduction for interest on home equity indebtedness has been suspended, unless used to buy, build, or substantially improve the home that is securing the related indebtedness. All miscellaneous itemized deductions that were previously subject to 2% of AGI have been suspended. The 50% charitable contribution limitation for cash contributions to public charities and certain private foundations has been increased to 60%. Charitable contribution deductions have been suspended for any payments to an institution of higher education in exchange for seating at an athletic event.
The child tax credit has increased from $1,000 per qualifying child under the age of 17 to $2,000.
Alimony payments are no longer deductible by the payor nor included on the payee's return for divorce or separation agreements executed after December 31, 2018.
The individual mandate to carry minimum health insurance has been repealed for years beginning after December 31, 2018.
Depreciation and like-kind exchanges:
Section 179 accelerated depreciation has been increased to $1 million with the phase out threshold amount increased to $2.5 million.
Bonus depreciation has been expanded and includes 100% first-year deduction for qualified property placed in service after September 27, 2017 and before January 1, 2023. The bonus depreciation will begin to phase out in 2023.
Like-kind exchange deferral of gain treatment has been repealed for personal property...the deferral is only allowed for real property that is not held primarily for sale.
Other tax changes:
The 50% deduction for amounts paid for entertainment purposes has been repealed for tax years beginning after December 31, 2017.
The Domestic Production Activities Deduction ("DPAD") has been repealed for tax years beginning after December 31, 2017.
The cash method of accounting may be used by taxpayers whose prior three-year average annual gross receipts are less than $25 million (previously $10 million). Additionally, the requirement to use the percentage-of-completion method (PCM) to calculate taxable income for construction contractors with average annual gross receipts in the three previous years of $10 million or more has been increased to $25 million.
For tax years beginning after December 31, 2017 the corporate tax rate is a flat 21%.
Alternative Minimum Tax (AMT) has been repealed
The dividend received deduction has been reduced from 80% and 70%, to 65% and 50%.
Net Operating Losses (NOLs) arising in tax years ending after December 31, 2017 can no longer be carried back two years. Carryovers can now be carried over indefinitely, but the deduction is limited to 80% of taxable income.
Deduction for Pass-Through Income:
- For tax years beginning after December 31, 2017 a company who has qualified business income (QBI) is allowed to deduct:
the lesser of: (a) the combined qualified business income amount of the taxpayer, or (b) 20% of the excess, if any, of the taxable income of the taxpayer for the tax year over the sum of net capital gain and the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year; plus
the lesser of: (i) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the tax year, or (ii) taxable income (reduced by the net capital gain) of the taxpayer for the tax year.
- For pass-through entities, other than sole proprietorships, the deduction cannot exceed the greater of:
- 50% of the W-2 wages with respect to the qualified trade or business ("W-2 wage limit"), or
- the sum of 25% of the W-2 wages paid with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all "qualified property." Qualified property means tangible, depreciable property which is held by and available for use in the qualified trade or business at the close of the tax year, which is used at any point during the tax year in the production of qualified business income, and the depreciable period for which has not ended before the close of the tax year.
- The deduction begins to phase out for specified service businesses (attorneys, accountants, etc) whose taxable income exceeds $315,000 for married filing jointly or $157,500 for other individuals.
Partnership Technical Termination:
- The partnership technical termination rules have been repealed for tax years beginning after December 31, 2017.
Hurricane Harvey Relief
Links to Other Sites
- IRS forms and publications - www.irs.gov
- New tax due dates - https://www.aicpa.org/interestareas/tax/resources/compliance/downloadabl...
- Social Security Administration - www.ssa.gov
- American Institute of CPAs - www.aicpa.org
- Texas Society of CPAs - www.tscpa.org
- Houston Chapter, TSCPA - www.houstoncpa.org
- CPAmerica International - www.cpamerica.org