The Tax Cuts and Jobs Act is Now Law

On Wednesday, 21 December, 2017 the final version of the Tax Cut and Jobs Act was passed by both houses of Congress and was signed by the President on 22 December 2017. 

The new law will lower tax rates for individuals and businesses alike.  It will also eliminate many deductions while retaining some.  It will be easier for the majority of individuals to file their tax on one page.

Here are the details.

PERSONAL INCOME TAX:

Personal Tax Brackets: 

Personal tax brackets will range from 10% to 37.5%. 

Single Filers

10% = 10% if less than $9,525

12% = $952.50 + 12% of excess over $9,525

22% = $4,453.50 + 22% of excess over $38,700

24% = $14,089.50 + 24% of excess over $82,500

32% = $32,089.50 + 32% of excess over $157,500

35% = $45,689.50 + 35% of excess over $200,000

37% = $150,689.50 + 37% of excess over $500,000

Head of Household

10% = 10% if less than $13,600

12% = $1,360 + 12% of excess over $13,600

22% = $5,944 + 22% of excess over $51,800

24% = $12,698 + 24% of excess over $82,500

32% = $30,698 + 32% of excess over $157,000

35% = $44,298 + 35% of excess over $200,000

37% = $149,298 + 37% of excess over $500,000

Married Joint Filers

10% = 10% if less than $19,050

12% = $1,905 + 12% of excess over $19,050

22% = $8,907 + 22% of excess over $77,400

24% = $28,179 + 24% of excess over $165,000

32% = $64,179 + 32% of excess over $315,000

35% = $91,379 + 35% of excess over $400,000

37% = $161,379 + of excess over $600,000

Married Filing Separately

10% = 10% if less than $9,525

12% = $952.50 + 12% of excess over $9,525

22% = $4,453.50 + 22% of excess over $38,700

24% = $14,089.50 + 24% of excess over $82,500

32% = $32,089.50 + 32% of excess over $157,500

35% = $45,689.50  + 35% of excess over $200,000

37% = $80,689.50 + 37% of excess over $300,000

Standard Deductions are as follows: 

Single:  $12,000

Head of Household:$18,000

Filing Jointly:$24,000

Personal Deductions Kept:

-Charitable Deduction

-State and Local Tax Deduction is limited to $10,000(sales tax, state income tax & property tax).  Taxes paid or accrued in carrying on a trade or business are not limited.

-Mortgage Interest Deduction on the first $750,000 on the value of a home

-The limit for the deduction of certain expenses of eligible educators, in determining adjusted gross income, is set to $500.

-Qualified bicycle commuting reimbursements of up to $20 per qualifying bicycle commuting month are excludible from an employee’s gross income.

Personal Deductions Eliminated:

-Appraisal fees for a casualty loss or charitable contribution;

-Casualty and theft losses from property used in performing services as an employee;

-Clerical help and office rent in caring for investments;

-Depreciation on home computers used for investments;

-Excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust;

-Fees to collect interest and dividends;

-Hobby expenses, but generally not more than hobby income;

-Indirect miscellaneous deductions from pass-through entities;

-Investment fees and expenses;

-Loss on deposits in an insolvent or bankrupt financial institution;

-Loss on traditional IRAs or Roth IRAs, when all amounts have been distributed;

-Repayments of income;

-Safe deposit box rental fees, except for storing jewelry and other personal effects;

-Service charges on dividend reinvestment plans; and

-Trustee’s fees for an IRA, if separately billed and paid.

-Medical Expenses

-Deductions for personal exemptions

-Deduction for alimony payments and corresponding inclusion in gross income.

-Deduction for moving expenses

-Deduction and exclusions for contributions to medical savings accounts.

-Deduction for performing artists and certain officials.

-Child Tax Credit:

The child tax credit was increased from $1,000 to $2,000.  The first $1,400.  The phaseout threshold will  dramatically increase from $110,000 to $400,000 for married filers.

-The Alternative Minimum Tax (AMT) for Individuals:

Raises the exemption on the alternative minimum tax from $86,200 to $109,400 for married filers, half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1,000,000 for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts).

-Estate Tax:

Raises the estate tax exemption to $5,400,000.  A 40% tax is imposed on any amount about that.

-Individual Mandate:

Effective 1 January 2019 the individual mandate for the Affordable Care Act (ACA) is repealed.

Corporate Tax Rate:

The Corporate tax rate is lowered to 21%.

Pass Through entities (S corporation, Partnerships, or Sole Proprietor):

Establishes a 23 percent deduction of qualified business income from certain pass-through businesses. Certain service industries are excluded.   Expires 1 January 2026.

Accounting:

Permits the use of the cash method of accounting for businesses with gross receipts of up to $25 million.

Capital Investing:

Full expensing is allowed for short-lived capital investment on equipment and machinery for five years.  Increases Section 179 expensing from $500,000 to $1,000,000.  [Increases the phaseout threshold from $2,000,000 to $2,500,000.  Reduces asset lives for residential and nonresidential real property to 25 years.]

Expensing:

Temporary 100-percent expensing for property placed in service after September 27, 2017, and before January 1, 2023.  80 percent expensing for property placed in service  after December 31, 2022, and before January 1, 2024. 60 Percent for property placed in service after December 31, 2023, and be- fore January 1, 2025.

Deductions Modified:

-Interest:

Limits the deductibility of net interest expense to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter.

-FDIC:

Limits the deduction for FDIC premiums.  No FDIC deductions for organizations with total consolidated assets of more than $10 billion.

-Net Operating Loss (NOL):

Eliminates Net Operating Loss (NOL) carrybacks and limits carryforwards to 80 percent of taxable income.

-Unreimbursed expenses attributable to the trade or business of being an employee:

-Business bad debt of an employee

-Business liability insurance premiums

-Damages paid to a former employer for breach of an employment contract

-Depreciation on a computer a taxpayer’s employer requires him to use in his work

-Dues to a chamber of commerce if membership helps the taxpayer perform his job

-Dues to professional societies

-Educator expenses

-Home office or part of a taxpayer’s home used regularly and exclusively in the taxpayer’s work

-Job search expenses in the taxpayer’s present occupation

-Laboratory breakage fees

-Legal fees related to the taxpayer’s job

-Licenses and regulatory fees

-Malpractice insurance premiums

-Medical examinations required by an employer

Occupational taxes

-Passport fees for a business trip

-Repayment of an income aid payment received under an employer’s plan

-Research expenses of a college professor

-Rural mail carriers’ vehicle expenses

-Subscriptions to professional journals and trade magazines related to the taxpayer’s work

-Tools and supplies used in the taxpayer’s work

-Purchase of travel, transportation, meals, entertainment, gifts, and local lodging

related to the taxpayer’s work

-Union dues and expenses

-Work clothes and uniforms if required and not suitable for everyday use

-Work-related education

-Repayments of income received under a claim of right (only subject to the two- percent floor if less than $3,000);

-Repayments of Social Security benefits; and

-The share of deductible investment expenses from pass-through entities.

-Eliminates the domestic production activities deduction (section 199).

Eliminates the employer-provided child care credit.

-The Alternative Minimum Tax (AMT):

The AMT is eliminated.

-Repatriation:

Cuts repatriation to 15.5% for cash and cash-equivalent profits and 8% for reinvested foreign earnings. 

-International Income:

Moves to a territorial system with base erosion rules.  This means that income earned overseas will not be double taxed.

Sources:
Senate Tax Cuts and Jobs Act
The Tax Foundation

By Bill Williams