The Tax Cuts and Jobs Act is arguably the
most significant change to the Internal Revenue Code in decades, the law
reduces tax rates for individuals and corporations and repeals many deductions,
thus simplifying filing for many taxpayers. Most of the individual changes will
expire at the end of 2025, meaning the old tax code rates and deductions will
return in 2026 unless Congress passes another law before then. Following information provided by Blue Springs income tax preparation office of Alliance Financial & Income Tax are
the most notable changes taking effect after December 31, 2017.
Individuals
Tax Brackets and Tax Rates
There are seven tax rates: 10%,
12%, 22%, 24%, 32%, 35% and 37%.
 |
 |
$38,701 - $82,500
$82,501 . $ 157,000
$157,001 $200,000
$200,CH.)1 - $,300,000
$300,001 +
$4,463.50 + 22% of the amoun t o,ver $38 ,70 0
$14 ,089 ..50 +
24o/o ,o ,f he amount ov0r $82,500
$32 089.50 t- 32°/o of the amount ove r $157
500
$45,689.50 + 35% of the amount over $200 000
$80,68'91 . 50 + 37% of the amount ·over $300,000
 |
Heads of Ho11.1seh,oid
ff
Taxable Income Is Between : The Tax Due Is:
If Taxable Income Is Between:
Trnsts & Estates
The Tax Due Is:
$0 - $2,5 50
$2,551 $:9,:150
$9161 - $12
,500 
$12,501 +
10% 1of taxab le inic,ome
$255 + 24% of he· amount ,over $ 2,550
$1,8 39 + 3.5%) a:f the amou11t o,v er $9.150
$3 011.50 + 37% of th @I amomrt over $12 500
 |
Alternative Minimum Tax
 |
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).
These amounts are indexed for inflation.
Estate Tax Exemption
The estate and
gift tax exemption is doubled for estates of decedents dying and gifts made
after December 31, 2017, and before January 1, 2026. This is accomplished by
increasing the basic exclusion amount provided in §2010(c)(3), and indexed for
inflation. The exemption increases to
$11,200,000 in 2018.
The generation skipping transfer
(GST) tax exemption is also doubled.
Standard Deduction
|
Married
filing jointly
|
$24,000
|
|
Head
of Household
|
$18,000
|
|
Single
|
$12,000
|
|
Married
filing separately
|
$12,000
|
|
Additional amount if over age 65, blind or disabled
|
$1,600
– Unmarried individuals
$1,300 – Each spouse meeting criterion
|
Personal
Exemptions
The personal exemption is
repealed.
Kiddie Tax
The kiddie tax
applies to unearned income for children under the age of 19 and college
students under the age of 24. Unearned income is income from sources other than
wages. Taxable income attributable to net unearned income will be taxed
according to the brackets applicable to trusts and estates. The rules for tax
applicable to earned income are unchanged.
Child Tax Credit
The child tax credit will increase
to $2,000 per qualifying child and will be refundable up to
$1,400, subject
to phaseouts. To receive the refundable portion of the child tax credit, a
taxpayer must include a social security number for each qualifying child
claimed on the tax return.
Also included is
a temporary $500 nonrefundable credit for other qualifying dependents who are
not qualifying children.
Phaseouts, which
are not indexed for inflation, will begin with adjusted gross income of more
than $400,000 for married taxpayers filing jointly and more than $200,000 for
all other taxpayers.
Student Loan Interest Deduction
For 2018, the
maximum amount that you can deduct for interest paid on student loans remains
at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income
(MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely
phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000
or more ($165,000 or more for joint returns).
For graduate
students who teach, or the children of university employees, the deferred
tuition provided would not be taxable.
There are no
changes to the current law regarding the American Opportunity Credit or the
Lifetime Learning Credit.
Section 529 Plans
Distributions of up to $10,000 per beneficiary can be used for tuition
expenses for public, private or religious elementary or secondary school. The
limitation applies on a per student basis rather a per account basis.
Rollovers from a
529 plan to an ABLE account are allowed without penalty provided the ABLE
account is owned by the same designated beneficiary of the 529 plan or a member
of the designated beneficiary’s family. Rolled-over amounts count towards the
overall annual limitation on contributions to the ABLE account.
Discharged of Student Loan Indebtedness
The exclusion
from income resulting from the discharge of student loan debt is expanded to
include discharges resulting from death or disability of the student.
Itemized Deductions
With the
exception of state and local income taxes, mortgage interest, medical expenses,
disaster losses, charitable contributions and other deductions not subject to
the 2% floor, all other itemized deductions are repealed. The overall
limitation on itemized deductions for upper- income individuals is also
repealed.
State and Local Taxes
Taxpayers can
claim a deduction for a combination of state and local income tax, sales tax,
or real property tax. The aggregate deduction is capped at $10,000. Foreign
real property taxes are no longer deductible.
Under this provision, an individual
may not claim an itemized deduction in 2017 on a pre- payment of income tax for
a future taxable year in order to avoid the dollar limitation applicable for
taxable years beginning after 2017.
Medical Expenses
For 2017 through
2018, expenses exceeding 7.5% of income are deductible; that percentage
increases to 10% in 2019. Under this provision, these thresholds also apply for
determining AMT.
Charitable Contributions
Taxpayers who
are able to itemize deductions can include charitable contributions. The
current limitation of 50% of income is increased to 60%.
The standard
mileage rate with regard to the use of a taxpayer’s automobile for charitable
purposes is indexed for inflation in taxable years beginning after December 31,
2017.
Mortgage Interest
The deduction
for mortgage interest is capped at $750,000 of debt. The interest deduction is
allowed on a first or second home. The interest on home equity loans will no
longer be deductible. Interest on up to $1 million of acquisition debt for
loans prior to December 15, 2017 is grandfathered.
Casualty Losses
Deductions for
unexpected losses to personal property are no longer deductible unless covered
by specific federal disaster declarations.
Wagering Losses
The meaning of
losses from wagering transactions is clarified to include other expenses
incurred by the individual in connection with the conduct of that individual’s
gambling activity such as travel expenses to or from a casino.
Teacher Expenses
The bill retains
the present law above-the-line deduction of $250 (indexed for inflation) for
out- of-pocket expenses.
Bicycle Commuting Reimbursement
The exclusion
from gross income and wages for qualified bicycle commuting reimbursements up
to $20 is suspended.
Moving Expense Reimbursements
The exclusion
from gross income and wages for qualified moving expense reimbursements is
repealed except in the case of a member of the Armed Forces of the United
States on active duty who moves pursuant to a military order.
Alimony
Beginning with
new divorces in 2019, alimony payments to an ex-spouse are no longer deductible
and not taxable to the recipient.
Affordable Care Act
The penalty for
failing to maintain minimum essential coverage for individuals (individual
mandate) is repealed beginning in 2019. The tax on net investment income (NIIT)
remains.
IRA Recharacterizations
The special rule
allowing a contribution to one type of IRA to be recharacterized as a
contribution to the other type of IRA no longer applies to a conversion
contribution to a Roth IRA.
Thus,
recharacterization cannot be used to unwind a Roth conversion. However,
recharacterization is still permitted with respect to other contributions. For
example, an individual may make a contribution for a year to a Roth IRA and,
before the due date for the individual’s income tax return for that year,
recharacterize it as a contribution to a traditional IRA.
In addition, an
individual may still make a contribution to a traditional IRA and convert the
traditional IRA to a Roth IRA, but the provision precludes the individual from
later unwinding the conversion through a recharacterization.
Plan Loan Offsets
An employee’s
obligation to repay a plan loan is accelerated and, if the loan is not repaid,
the loan is cancelled and the amount in employee’s account balance is offset by
the amount of the unpaid loan balance, referred to as a loan offset. A loan
offset is treated as an actual distribution from the plan equal to the unpaid
loan balance and is eligible for tax-free rollover to another eligible
retirement plan. A rollover contribution is extended from 60 days after the
date of the offset to the due date (including extensions) for filing the
federal income tax return for the taxable year in which the plan loan offset
occurs, that is, the taxable year in which the amount is treated as distributed
from the plan.
A qualified plan
loan offset amount is a plan loan offset amount that is treated as distributed
from a qualified retirement plan, a section 403(b) plan or a governmental
section 457(b) plan solely by reason of the termination of the plan or the
failure to meet the repayment terms of the loan because of the employee’s
severance from employment.
Corporations and Businesses
Tax Rates
The tax rate for
corporations is reduced to 21% beginning January 1, 2018 and is made permanent.
Dividends Received Deduction
The 80% and 70%
dividends received deductions under current law are reduced to 65% and 50%,
respectively.
Alternative Minimum Tax
Effective for tax
years beginning after 2017, corporations are no longer subject to AMT. In the
case of a corporation, the bill allows the AMT credit to offset the regular tax
liability for any taxable year. In addition, the AMT credit is refundable for
any taxable year beginning after 2017 and before 2022 in an amount equal to 50%
(100% in the case of taxable years beginning in 2021) of the excess of the
minimum tax credit for the taxable year over the amount of the credit allowable
for the year against regular tax liability.
Pass-through Businesses
Non-corporate
taxpayers, including trusts or estates, who have domestic qualified business
income (QBI) from a partnership, S corporation, or sole proprietorship are
allowed to deduct 20% of business-related income, subject to certain wage
limits and exceptions. The remaining income is subject to normal individual
rates.
The 20% deduction
is not allowed in computing adjusted gross income (AGI), but rather is allowed
as a deduction reducing taxable income. It does not reduce income subject to SE
tax. The deduction is also not allowed for businesses offering certain personal
services.
The deduction
ratably phases out for joint filers with income between $315,000 and $415,000
and between $157,500 and $207,500 for others.
This provision
provides an alternate limitation based on wages and capital. The limitation is
the greater of 50% of the wages paid or 25% of the wages paid plus 2.5% of the
unadjusted basis of the business' capital assets.
Carried Interest
The holding
period for long term capital gains is increased to three years with respect to
certain partnership interests transferred in connection with the performance of
services.
Domestic Production Activities Deduction (DPAD)
Repealed effective for tax years
beginning after December 31, 2017.
Like-Kind Exchanges
The
nonrecognition of gain in the case of the like-kind exchange of property used
in a trade or business or for investment is limited to real property only.
Net Operating Losses
Net operating
losses are limited to 80% of taxable income for losses arising in tax years
beginning after December 31, 2017.
The two-year
carryback and special carryback provisions are repealed except for losses
incurred in the business of farming. Carryovers are allowed indefinitely. NOLs
of a property and casualty insurance company are allowed a two-year carryback
and 20-year carryforward period.
Excess Business Losses
Currently
taxpayers who incur a net business loss are allowed to carry that loss back two
years and forward 20 years. Under the new law, non-corporate taxpayers are
allowed an "excess business loss." Instead, the loss is carried
forward and treated as part of the taxpayer's NOL carryforward in subsequent
taxable years.
An excess
business loss for a taxable year is the excess of the taxpayer's aggregate
deductions attributable to the taxpayer's trades or businesses for that year,
over the sum of the taxpayer's aggregate gross income or gain for the year plus
a "threshold amount" of $500,000 for married individuals filing
jointly, or $250,000 for other individuals. The provision applies after taking
into account the passive activity loss rules.
Section 179 Expensing
The maximum
amount a taxpayer may expense under §179 increases to $1,000,000. The phase-out
threshold amount increases to $2,500,000. The $1,000,000 and $2,500,000
amounts, as well as the $25,000 sport utility vehicle limitation, are indexed
for inflation for taxable years beginning after 2018.
The definition
of §179 property is expanded to include certain depreciable tangible personal
property used predominantly to furnish lodging or in connection with furnishing
lodging, such as furniture and appliances.
The definition
of qualified real property eligible for §179 expensing now includes any of the
following improvements to nonresidential real property placed in service after
the date such property was first placed in service:
·
Roofs
·
Heating, ventilation, and air-conditioning property
·
Fire protection and alarm systems
·
Security systems
Computers and peripheral
equipment are removed from the definition of listed property.
Bonus Depreciation
Additional first year depreciation is available to new and used
property. In other words, the requirement that the first qualified use begin
with the taxpayer is repealed.
Bonus depreciation rates are as follows:
|
Placed in Service Year
|
Bonus Depreciation Percentage
|
|
|
Qualified
Property in General/Specified Plants
|
Longer Production Period Property and
Certain Aircraft
|
|
|
Portion of Basis of Qualified
Property
Acquired before September 28,
2017
|
||
|
September 28,
2017 –
December 31,
2017
|
50%
|
50%
|
|
2018
|
40%
|
50%
|
|
2019
|
30%
|
40%
|
|
2020
|
None
|
30%
|
|
2021 and
thereafter
|
None
|
None
|
|
|
||
|
Portion of Basis of Qualified Property
Acquired after September 27, 2017
|
||
|
September 28,
2017 –
December 31,
2022
|
100%
|
100%
|
|
2023
|
80%
|
100%
|
|
2024
|
60%
|
80%
|
|
2025
|
40%
|
60%
|
|
2026
|
20%
|
40%
|
|
2027
|
None
|
20%
|
|
2028 and
thereafter
|
None
|
None
|
As a conforming
amendment to the repeal of corporate AMT, the election to accelerate AMT
credits in lieu of bonus depreciation is repealed.
Vehicle Depreciation
The cap placed on
depreciation write-offs of business-use vehicles is increased and indexed for
inflation. The new limits are as follows:
1st year - $10,000 2nd year - $16,000 3rd year - $9,600
Each year thereafter until cost is fully recovered - $5,760
The new, higher
limits apply to vehicles placed in service after December 31, 2017, and for which
additional first-year depreciation §168(k) is not claimed.
Entertainment Expenses
No deduction is
allowed with respect to (1) an activity generally considered to be
entertainment, amusement or recreation, (2) membership dues with respect to any
club organized for business, pleasure, recreation or other social purposes, or
(3) a facility or portion thereof used in connection with any of the above
items.
In addition, the
provision disallows a deduction for expenses associated with providing a
qualified transportation fringe to employees of the taxpayer, and except as
necessary for ensuring the safety of an employee, any expense incurred for
providing transportation (or any payment or reimbursement) for commuting
between the employee’s residence and place of employment.
Taxpayers may
still generally deduct 50 percent of the food and beverage expenses associated
with operating their trade or business (e.g., meals consumed by employees on
work travel). For amounts incurred and paid after December 31, 2017 and until
December 31, 2025, the provision expands this 50 percent limitation to expenses
of the employer associated with providing food
and beverages to employees through an
eating facility that meets requirements for de minimis fringes and for the
convenience of the employer.
Technical Termination of Partnerships
The rules under
§708(b)(1)(B) providing for technical terminations of partnerships is repealed
effect for tax years beginning after December 31, 2017. The provision does not
change the present-law rule of §708(b)(1)(A) that a partnership is considered
as terminated if no part of any business, financial operation, or venture of
the partnership continues to be carried on by any of its partners in a
partnership.
Alliance Financial & Income Tax is here to help sift through the new tax law for you. If you have any questions please do not hesitate to contact us at 816-220-2001.
Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012
AFITOnline.com
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012
AFITOnline.com
