The new tax law, commonly called the “Tax Cuts and Jobs Act,” is the biggest federal tax law change in over 30 years. Below are some significant changes affecting individuals and businesses. Except where noted, the changes are effective for tax years beginning after December 31, 2017.
While we have included the most popular provisions, be sure to contact our office to see how these, and other provisions of the Tax Cuts and Jobs Act, may affect you.
Individual Tax provisions that were eliminated:
Personal exemption deductions are suspended.
Phase-out of itemized deductions based on adjusted gross income (AGI) is suspended.
Itemized deduction for home equity interest(other than acquisition debt) is no longer allowed.
Itemized deduction for miscellaneous itemized deductions subject to the 2% floor are no longer allowed.
Examples include investment expenses, unreimbursed employee business expenses, and tax preparation fees.
Personal casualty loss and theft deductions are eliminated unless the loss is incurred in a federally declared disaster area.
The moving expense deduction and income exclusion is allowed only to members of the Armed Forces (or their spouses or dependents).
No charitable contribution deduction is allowed for a payment to a higher educational institution in exchange for the right to purchase tickets or seating at an athletic event.
Alimony is not deductible by the payer nor includible in income by the recipient for agreements entered into after December 31, 2018.
Effective for 2019, the shared responsibility payment under the Affordable Care Act for not having minimum essential health insurance coverage is zero.
Individual Tax provisions that were reduced:
The 2018 individual income tax brackets are reduced with the top bracket at 37%
The home mortgage interest deduction debt limit is reduced to $750,000 ($375,000MFS) with certain exceptions.
The itemized deduction for state and local taxes is limited to $10,000 ($5,000 MFS).(This limit includes both state and local income taxes and real property taxes.)
The threshold for deducting medical expenses is 7.5% of AGI for all taxpayers for 2017 and 2018.
Individual Tax provisions that were increased:
The 2018 standard deduction is:
Single or Married Filing
Married Filing Joint or
Qualified Widow(er) …………..$24,000
Head of Household……………$18,000
The Child Tax Credit increased to $2,000 per qualifying child and the phase-out threshold increased.
There is a new Family Tax Credit of up to $500 for dependents who are not a qualifying child for purposes of the Child Tax Credit.
The 2018 alternative minimum tax (AMT) exemption and phase-out ranges are increased.
For the charitable contribution deduction,the percentage of AGI limitation for cash to public charities and certain other organizations increased from 50% to 60%.
The estate and gift tax exemption amount increased to$11,180,000.
Individual Tax provisions that were changed:
The long-term capital gain and qualified dividend income maximum tax brackets no longer follow the tax brackets for regular income tax purposes.
The parent’s rate is no longer used to calculate the kiddie tax. Instead, taxable income attributable to net unearned income is taxed at the estates and trusts tax rates for both ordinary income and net capital gains.
Business provisions that were changed:
Section 199A deduction is effective as of January1, 2018. Sole proprietorships,partnerships, and S corporations maybe eligible for some or all of the new 20% deduction of qualified business income.
Expenses related to charity golf tournaments were 100% deductible if you discussed business before, during,or after the event. These expenses are no deductible as an ordinary and reasonable business expense.
Business meals (with clients and prospective clients) directly related to a trade or business were 50%deductible. However, under the present interpretation of the law these are no longer deductible. We are waiting for further clarification on this issue.
Business meals when traveling or for staff (which were100% deductible) are now 50% deductible.
Entertainment which was directly related to the trade or business were 50% deductible, they are now no longer deductible. This includes for example, tickets to sporting events or the theatre or golf fees.
Hobby expenses are no longer deductible as the entire section of the Schedule A subject to the 2% threshold has been eliminated.
Section 179 expending of business assets has increased to $1 million per year with the phase-out beginning at $2.5million. As in prior years, qualifying property includes both new and pre-owned assets.
The 2018 alternative minimum tax (AMT) has been eliminated for corporations.
Transportation fringe benefits are still tax-free to employees for parking, public transportation and bicycle expenses; however, they are no longer a business deduction for employers.
Bonus depreciation is now 100% and available for both new and pre-owned equipment. It must be new to the taxpayer, therefore, property exchanged in a Section 351 transfer of assets
or personal assets placed into a sole proprietorship are not eligible for bonus depreciation (but still eligible for Section 179).
Section 1031 exchanges are no longer allowed for personal or business property, only for real property.C corporation tax rates are now a flat 21% for all businesses regardless of services or products offered