We all know that the President has signed and approved the new tax bill called The Tax Cuts and Jobs Act.
This new act impacts virtually every individual and business on a level that we have not seen in over 30 years. This historic bill calls for lowering the individual and corporate tax rates, repealing countless tax credits and deduct ions, enhancing the child tax credit, boosting business expending, and more.
However, as we plan for 2018 and beyond with these new laws, we need to also remember that many of the changes to the Internal Revenue Code in the final bill are temporary. This is true especially with respect to the provisions of the bill impacting individuals. This decision was made in order to keep the bill within budgetary parameters, but with no guarantees that a future Congress would extend them.
Few of the new tax changes that will affect most of us are as follows:
- The new law calls for a near doubling of the standard deduction. This would definitely simplify tax filing through cutting, by more than half, those taxpayers who would otherwise do better by itemizing deductions. Of course, that group would realize less of a net tax benefit than those taxpayers who do not now itemize.
- This will also effectively eliminate most individuals from claiming itemized deductions other than higher income taxpayers. For example, for the vast majority of married taxpayers filing jointly, only those with allowable mortgage interest, state income and local income/property taxes (up to $10,000), and charitable deductions that exceed $24,000 would claim them as itemized deductions (absent extraordinary medical expenses). With fewer individuals claiming those deductions, this could have broad impact on both real estate prices and charitable organizations despite retaining those two deductions, in modified form.
- Also don’t forget that the deduction for personal exemptions and the personal exemption phase-out through 225 would reduce the net benefit of the standard deduction for most taxpayers,
- The bill temporarily increases the current child tax credit from $1,000 to $2,000 per qualifying child. Up to $1,400 of that amount would be refundable.
- The child tax credit is further modified to provide for $500 nonrefundable credit for qualifying dependents other than qualifying children.
- As a credit, in contrast to a deduction, the enhanced child credit has been highlighted as one of the provisions that will lower overall tax liability for middle-class families.
- The new law calls for 21 percent corporate tax rate beginning in 2018. The bill makes the new rate permanent. The maximum corporate tax rate currently tops out at 35 percent.
- The law increases the 50-percent “bonus depreciation” allowance to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023. A 20-percent phase down schedule would then kick in.
- Currently, owners of partnerships, S corporations, and sole proprietorship – as “pass-through” entities – pay tax at the individual rates, with the highest rate at 39.6 percent. The new bill is providing a 25-percent tax rate for certain pass-through income after 2107, with 20 percent of qualified deductions.