Congress has passed the Tax Cuts and Jobs Act, the most sweeping tax reform since 1986. Here’s a brief review of some of the changes and how they may impact your taxes. What has always been is no more, as the saying goes. We would be happy to answer any of your questions on how the Tax Cuts and Jobs Act impacts you and your business.
How the Tax Cuts Affect Individuals
- Individual tax rates have been reduced by approximately 2%
- 7 Tax brackets retained
- Personal exemptions are gone ($4,050 per person)
- Child and family tax credit increased from $1,000 to $2,000 (children under 16)
- Alternative Minimum Tax still here but has been defanged a little
- State and local tax deduction – limited to $10,000
- Capital gains tax rates unchanged
- Standard deduction has been doubled ($24,000 MFJ, $12,000 Single & MFS – $18,000 HOH)
- Itemized deductions subject to 2% floor eliminated (unreimbursed employee expenses, investment expenses, tax preparation fees, union dues, educator expenses, etc.)
- Home equity loan interest deduction repealed
- Alimony paid deduction repealed (agreements executed after 12-31-18)
- Moving expenses repealed
- Changes made to the Roth IRA conversion rules
How the New Tax Cuts Impact Businesses
- C Corporations taxed at a flat rate of 21% – was the top rate of 35%
- Businesses other than C corporations:
- New 20% deduction of net business income
- Applies to sole proprietors, partnerships and S corporation, trusts and estates (pass-through entities)
- Business income over $415,000 (MFJ) has special rules
- Service business over $315,000 (MFJ) no deduction
- Many special rules
- Bonus depreciation 100% 9-27-17 to 2022
- Now includes used property
- Equipment expensing election (Sec. 179) $1,000,000
- Must elect out of bonus depreciation to use Sec. 179
- Caution! Can be to much of good thing
- Eligible categories have been expanded
Other Changes That Effect You
- Like-kind Exchanges
- Real property only
- If exchange includes land with equipment i.e. irrigation system, equipment does not qualify
- Trade in of equipment is a sale!
- Shouldn’t be an issue with increased limits on expensing
- Net Operating Loss rules have changed
- No carryback (except for farmers)
- Carry forward indefinitely limited to 80% of income
- Losses limited to $500,000 excess carried forward
Work Opportunity Tax Credits
- Whenever you hire a new employee, check to see if they qualify for the Work Opportunity Tax Credit
- Veterans
- Unemployed for more than 6 months
What Can Tax Planning Do to Help?
- Look at bunching itemized deductions like medical expenses to get added savings
- Same for State and Local taxes
- Use Health Savings Accounts to get a better deduction
- Meet with your tax professional often to make sure you are prepared for the changes
Here’s a brief PowerPoint Slideshow entitled How Tax Cuts and Jobs Act Impacts You which I prepared recently for a local business organization. For additional reading, please see The Tax Cuts and Jobs Act for further explanation on the Act.
We’re sure you will have questions about this, and we’re here to answer those questions for you. Just use the Contact Us form or give us a call at (541) 889-5318 to speak with our tax professionals.