December 22, 2017, the Tax Cuts and Jobs Act of 2017 was passed and signed into law by U.S. President Donald Trump. Most of these new tax changes will go into effect January 1, 2018. The 2017 tax returns will not be affected.
Almost all taxpayers will be impacted by these tax changes. Those who are itemizing their deductions will have fewer deductions to deduct in exchange of a much higher standard deduction. Changes on child-related tax breaks would also greatly affect families.
Here’s a closer look on some of the key provisions of the 2017 tax reform bill.
- Higher standard deductions but… No more personal exemptions. This new law almost doubled the standard deduction to $12,000 for single individuals, $18,000 for head of household and $24,000 for married filing joint returns. But then, the personal exemption credit has also been eliminated.
- Tax bracket changes. The new law kept the 7 tax brackets from prior years with different breakpoints and rates. The lowest rate is still 10% but the top rate is lowered from 39.6% to 37%.
- Higher child tax credit- starting tax year 2018, the child tax credit for each child under 17 is doubled to $2,000 from $1,000. Out of the $2,000, a $1,400 will be available as a refundable credit to lower income families.
- State and Local Taxes deduction – individuals may deduct a maximum of $10,000 in state income tax, local, and property tax.
- Home mortgage interest deduction – homeowners can only deduct mortgage interest for debt up to $750,000. This limit applies to debt incurred after 12/15/2017.
- No more deductions allowed for Miscellaneous itemized deductions.
- Entertainment expenses are disallowed.
- Moving expenses deduction is also totally eliminated.
- The Affordable Care Act (ACA) mandate was also eliminated and the shared responsibility payment is reduced to zero, but it would be until 2019. For 2018, the mandate is still in place.
- Alimony will be tax free to the recipient and won’t no longer be allowed as adjustment to income of the one who paid it.
- Education credits were retained.
- For Business entities such as C-Corporations, the new tax law reduced the tax rate from 35% to 21%, for S- Corp, partnerships, and LLC, taxation under the new law would be more complex. A deduction is allowed for qualified business income for pass through entities.
- Corporate AMT is repealed, but for individuals, AMT was retained with higher exemption amounts.
How will these tax changes impact you and your business? Contact us if you have any questions or concerns.
Oscar B. Antonio, EA