Consider this post as “Tax Reform for Beginners”. Following is a basic outline of the more significant changes included in the TCJA, effecting both individuals and businesses. We are most happy to answer any questions you may have after reviewing this outline.
Highlights & Lowlights for Individuals
Highlights
- Tax rates lowered - top rate 37% vs. 39.6%
- Increases the exemption amount for individual Alternative Minimum Tax (AMT)
- ($109,400 for joint, $70,300 single vs. $84,500 & $54,300)
- Estate and gift tax exemption increased to $11.2 million
- Qualified Business Income deduction of 20% allowed
- Amount subject to wages paid calculation (50% of W-2 wages)
- Not for "special service businesses"
- Exclusion for taxable income under $157,500 single & $315,000 joint (phase-out)
- Does apply to qualified REIT dividends; PTP income; residential rental income
- Increased the standard deduction to $24,000 (vs. $12,700 in 2017) on joint return
- Child tax credit $2,000 per qualifying child ($1,400 refundable)
- Phase-out begins at $400,000 joint & $200,000 single
- Section 529 Plans allowed to distribute up to $10,000 annually for elementary or secondary school
- Medical expense deduction threshold reduced to 7.5% of AGI
Lowlights
- Denies charitable contribution for payments made in exchange for college athletic event seating rights
- Personal exemptions eliminated ($4,050)
- 2017 phased out between $313,800 and $438,800
- State & local income tax & property tax deduction limited to $10,000
- Miscellaneous itemized deductions subject to the 2% floor are eliminated
- Home mortgage interest deduction limited to $750,000 of debt vs. $1,000,000 prior
- Home equity loan interest deduction repealed
- Casualty losses repealed except for presidentially declared disaster area casualties
- For divorces after 2018, alimony not deductible (also not income to the recipient)
- Moving expense deduction repealed (except for members of armed forces)
Select Business Provisions
- Corporation top tax rate lowered to flat rate of 21%
- (vs. top rate of 35%)
- taxable income above $50,000 will have lower rate
- One-time repatriation rate on cash of 15.5% vs. 35%
- ($2.6 trillion held overseas; Apple has $200 billion parked)
- Increases Section 179 expensing cap to $1 million vs. $500,000
- Net interest expense deductibility limited to 30 % of EBITDA
- No operating loss carrybacks; carryforwards limited to 80 of taxable income
- Entertainment, amusement & recreation provided to employees not deductible
- Meals, food, & beverages provided to employees deduction limited to 50%
- Entertainment provided to customers, including memberships are not deductible
- Meals provided to customers are 50%
Contact us at 1-866-287-9604 with any questions.
Posted by John Winslow, CPA