President Trump this morning signed the new tax reform legislation, after Congress passed it through the Senate and House earlier this week. As the bill becomes law here are some of the key points of the legislation.
Please note: these changes will be applied to 2018 taxes
Individual Tax Rates
• Americans will continue to be placed in one of seven tax brackets based on their income
• The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%
Standard Deduction
• The standard deduction has nearly doubled
• For single filers, the standard deduction has increased from $6,350 to $12,000
• For married couples filing jointly, it’s increased from $12,700 to $24,000
Personal Exemption
• The personal Exemption has been eliminated
State and Local Tax Deduction
• The state and local tax deduction (including real estate taxes on your home, state income and sales tax), or SALT, remains in place for those who itemize their taxes — but now there’s a $10,000 cap
Child Tax Credit
• The child tax credit has doubled to $2,000 for children under 17
• The credit can be claimed by single parents who make up to $200,000
• The credit can be claimed by married couples who make up to $400,000
• New tax credit for non-child dependents
– Taxpayers may now claim a $500 temporary credit for non-child dependents, such as children over age 17, elderly parents or adult children with a disability
Alternative Minimum Tax
• The exemption has been raised to $70,300 for singles, and to $109,400 for married couples
529 Savings Accounts
• Up to $10,000 can be distributed annually to cover the cost of sending a child to a “public, private or religious elementary or secondary school”
Deductions Still In Place
• Mortgage interest deduction
– Current homeowners are in the clear
– But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage
debt, down from $1 million
• Student loan interest
– The deduction for student loan interest is up to $2,500 per year
• Medical expenses
– Filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income, subject to their total itemized deductions exceeding the standard deduction
• Teacher/classroom supplies
– Educators can continue to deduct up to $250 to offset what they spend on classroom materials
• Electric car tax credit
– Drivers of plug-in electric vehicles can still claim a credit of up to $7,500
– The full amount is only good on the first 200,000 electric cars sold by each automaker
• Capital gains tax break
– Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they’re selling their primary home and have lived there for two of the past five years
Deductions Being Eliminated
• Alimony payments
– No longer deductible for the person making the payments
– This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018
• Moving expenses
– Most people will no longer be able to deduct the cost of moving for work
– There may be some exceptions for members of the military
• Tax preparation deduction
– The break has been eliminated for the cost of having taxes prepared by a professional, or the money spent on tax prep software
• Disaster deduction
– Now through 2025, people can only claim disaster deduction if they’ve been affected by an official national disaster
Estate Tax
• The bill will double the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026
Health Insurance Mandate
• The individual mandate penalizing people who do not have health care, will be eliminated in 2019
Corporate Tax Rate
• The corporate tax rate has been cut from 35% to 21%
• The alternative minimum tax for corporations has been eliminated altogether
Pass-Through Entities
• The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships — who pay their share of the business’ taxes through their individual tax returns — has been lowered via a 20% deduction with some limitations based on taxable income, wages paid within the business and by type of business
International Taxes
• Certain Domestic Corporations may receive a 100% dividend received deduction on foreign sourced dividends from foreign corporations
• US Shareholders of foreign corporations may be required to pay a one-time deemed repatriation tax on existing overseas profits at the rate of 15.5% on cash holdings and 8% on non-cash assets
In the New Year we will more closely examine the different sections of the new legislation and how it may impact you or your business.
For more information on how any of these changes might impact you or your business, please contact your tax advisor or Timothy Devlin, Tax Services Leader, at [email protected].
