Are you ready for the new tax reforms?
It’s been 31 years since we had such a major overhaul, back when Ronald Reagan was president. As with the previous “cuts” this one, too will have an impact on your taxes, almost immediately. Some of those impacts will be positive, and others not so much, but nearly everyone will be touched by it in some way.
We’ll be having an informative and more in-depth seminar that will be open to the public in just a few weeks, so keep an eye on your inbox if you’re a client or if you’re on our mailing list for times and dates, or just check back here on our blog for more information.
Here are a few of the highlights to note, for individuals, and for businesses:
• For 2018, your income tax percentage rate, or “bracket” will likely drop, up to 4%, through 2025. This will (likely) reduce your tax owed, as well as impact your take-home pay in a positive direction.
• Your standard deduction before calculating your taxes will nearly double, up to $12,000 for singles filers or married taxpayers filing separately; $18,000 for heads of households; and $24,000 for married couples filing jointly, again, beginning in 2018 and continuing through 2025.
• The child tax credit will double.
• The penalty for not having health insurance, the “mandate” under the Affordable Care Act, has been eliminated, beginning January 1, 2019.
• It will be easier to qualify to deduct medical expenses for both 2017 and 2018.
• There is a new $10,000 limit on the deduction allowed on federal income taxes for state and local taxes, and that limit is down to $5,000 for separate filers, through 2025. This is more of an issue in states with high personal income taxes levied by cities and states, than it is here in Tennessee, where there is no personal income tax at the state level.
• With the exception of federally declared disasters, like the fires in California or the hurricanes in the Southeast, the personal casualty and theft loss deduction has been eliminated.
• A number of other deductions have been eliminated, such as certain professional fees, investment expenses and unreimbursed employee expenses.
• Mortgage interest deductions have been limited, but not eliminated.
• Deductions for interest on home equity debt has been eliminated.
• Unless you serve in the military, moving expenses are no longer deductible.
• Tax-free distributions of Section 529 plans used to pay qualifying elementary and secondary school expenses have been expanded, up to $10,000 per student, per year.
• There has been an increase in the Alternative Minimum Tax exemption, or AMT, to $109,400, $70,300, and $54,700 for joint filers, singles/heads of household, and separate filers, respectively.
• The gift and estate tax exemptions have doubled, to $10 million, and are indexed to inflation in subsequent years, through 2025.
• The biggest news is the elimination of graduated corporate tax rates (ranging from 15-35%) in favor of a flat corporate rate of 21%
• Elimination of the 20% corporate Alternative Minimum Tax (AMT)
• Establishment of a new 20% qualified income deduction for owners of flow-through entities. (Flow through entities are sole proprietorships, partnerships, limited liability companies and S corporations whose income “flows through” to the individual owners to be reported in conjunction with their personal tax returns.)
• Favorable depreciation expansions, including doubling of bonus depreciation to 100% of qualified assets, doubling Section 179 limits to $1 million, and increasing the phase out beginning at $2.5 million, along with other depreciation improvements.
• Elimination of most deductions for net interest expenses if they are in excess of 30% of the business’s adjusted taxable income for corporations with more than $25 million in gross receipts.
• Net operating loss (NOL) deductions have been modified.
• The manufacturers’ deduction, or Section 199, which covers domestic production activities, has been eliminated, beginning after December 31, 2017 for noncorporate taxpayers, and December 31, 2018 for C corporation taxpayers.
• A new rule enacted limiting like-kind exchanges.
• New credit for employer-funded family and medical leave, through 2019.
• New limits on “excessive” employee compensation.
• There are now new limits on deductions for employee fringe benefits, including some meals and transportation, as well as entertainment expenses.
These are just some of the highlights of the sweeping new tax rules. Stay tuned for a more comprehensive overview, and what it may mean to you, when we offer an open-to-the-public seminar on the new tax rules. Dates and times will be announced soon.
In the meantime, if we can do anything to ease your mind or if you’d like to discuss your particular situation with one of our tax advisors, please call our office for an appointment.