Tax Changes for Individuals For tax years beginning after December 31, 2017:
There are now seven income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Capital gains tax rates are still 0% and 15%.
The Standard Deduction has increased to: Single - $12,000 Married-Filing-Jointly - $24,000 Married-Filing-Separately/Head-of-Household - $18,000
The deduction for personal exemptions is no longer allowed.
The Child Tax Credit has been increased to $2,000 per qualifying child. A $500 credit is allowed for certain other dependents. The phase-out for this credit begins at $400,000 of Adjusted Gross Income for Married Filing Jointly taxpayers.
For taxable years 2017 and 2018, a deduction for medical expenses is allowed if they exceed 7.5% of the taxpayer’s adjusted gross income. After 2018, this deduction will be allowed for medical expenses that exceed 10% of the taxpayer’s adjusted gross income.
A deduction for state and local property, income, and sales taxes is limited to $10,000, combined.
Personal casualty losses are only deductible if they are attributable to a Federally declared disaster.
Miscellaneous itemized deductions (e.g. unreimbursed employee expenses, home office expense, tax preparation fees, and moving expenses) are no longer deductible.
Home equity loan interest can no longer be deducted. After December 15, 2017, home mortgage interest is deductible on loans of up to $750,000 ($375,000 for married-filing-separate return).
For divorces executed after December 31, 2018, alimony payments are no longer allowed as a deduction by the payer, and are no longer required to be included in the recipient’s income.
There is no longer an income limitation on itemized deductions.
After December 31, 2018, the penalty for individuals failing to maintain minimum essential coverage is eliminated.
Alternative minimum tax is retained for individuals.
Tax Changes for Estates
The stepped-up basis of inherited property is retained.
For estates formed and gifts made after December 31, 2017, the estate and gift tax exemption for transferred property has increased to $20 million.
Tax Changes for Businesses For tax years beginning after December 31, 2017:
C-Corporation income is taxed at a flat rate of 21%. C corporations will no longer be subject to Alternative Minimum Tax.
Entertainment expenses are no longer deductible. A deduction of 50% of business meals is still allowed.
The Domestic Production Activities deduction is no longer allowed.
For net operating losses arising in taxable years beginning after December 31, 2017, the net operating loss deduction allowed is limited to 80% of taxable income. Net operating losses can no longer be carried back to previous tax years, but can be carried forward indefinitely.
Up to $1,000,000 of depreciable assets placed in service during the year can be expensed under Section 179. The deduction limitation is reduced once the cost of section 179 property exceeds $2,500,000.
100% of the cost of certain new and used depreciable assets placed in service between September 27, 2017, and December 31, 2022, can be expensed under bonus depreciation.
Qualified Business Income deduction: A taxpayer can deduct 20% of qualified net income from each qualified trade or business carried on by the taxpayer, subject to certain income limitations.
Business interest expense deduction is limited for corporations with gross receipts of over $25 million.
Like-kind exchanges are limited to real estate.
Cash basis accounting is allowed for businesses with gross receipts up to $25 million.
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This newsletter is for informational purposes and is based on current tax law, including administrative interpretation. Tax law is subject to continual change, at times on a retroactive basis. Since every taxpayer has unique circumstances, this information should not be solely relied on to make accounting or legal decisions. If you need advice regarding a specific tax situation, please contact our office.