A snapshot of the Tax Cuts and Jobs Act

Congress released this week the Tax Cuts and Jobs Act, and we wanted to give you a snapshot of some of the provisions included that could have an impact on you and your business. As the bill moves through the legislative process, many of these details will likely change, but we want you to know that we will stay on top of any changes that will affect you:

The following are just a few of the details contained in the bill that may be pertinent to you:

For businesses:

  • A flat corporate rate: The bill proposes reducing the 35 percent corporate income tax to 20 percent (25 percent for personal services corporations) beginning in 2018. The corporate alternative minimum tax would be repealed.
  • 100 percent cost recovery deduction: Instead of bonus depreciation, the bill provides for 100 percent expensing the cost of certain property placed in service after September 27, 2017, and before January 1, 2023.
  • Increase in Section 179 expensing: For tax years beginning after 2017 through tax years beginning before 2023, the bill proposes to increase the amount that could be expensed under Section 179 from $510,000 to $5 million. The phase-out amount would be increased to $20 million from the current $2.03 million.
  • Eliminate or limit certain credits: Under the bill, the work opportunity tax credit and employer-provided child care credit would be repealed.
  • Pass-through limits: The tax rate applied to a portion of a pass-through entity’s business income would be limited to 25 percent.
  • Like-kind exchanges: The deferral of gain on like-kind exchanges would be modified to allow for like-kind exchanges only on real property.
  • Entertainment expenses: The bill eliminates the deduction for entertainment, amusement or recreation activities, facilities, or membership dues relating to such activities or other social purposes. Likewise, no deduction would be allowed for transportation fringe benefits, benefits in the form of on-premises gyms and other athletic facilities, or for amenities provided for employees that are primarily personal in nature and that involve property or services not directly related to the employer’s trade or business.

For individuals:

  • Tax rates: The bill replaces the seven income tax brackets for individual taxpayers with four rates of 12 percent, 25 percent, 35 percent, and 39.6 percent.
  • AMT: The bill would repeal the individual alternative minimum tax.
  • Standard deduction: The standard deduction would be increased to $24,400 for joint returns and surviving spouses, $18,300 for unmarried individuals with at least one qualifying child, and $12,200 for others who are not claimed as dependents.
  • Personal exemption: The bill would repeal the deduction for personal exemptions.
  • Mortgage deduction:  The bill would retain the home mortgage interest deduction in its current form – i.e. subject to a $1 million cap – for mortgages that already exist on November 2, 2017, including binding contracts in process before that date.  However, for principal residences acquired after November 2, 2017, the mortgage interest deduction would be limited to interest on home mortgage loans of $500,000 or less for married filing jointly ($250,000 for single taxpayers).
  • State and local taxes: The bill eliminates the individual itemized deduction for state and local income or sales taxes, but would retain the deduction for real property taxes, subject to a $10,000 maximum.
  • Other deductions: The bill would repeal other deductions such as the medical expense deduction, the alimony deduction, tax prep fee deduction, moving expense deduction, and the casualty loss deduction (except for personal casualty losses associated with special disaster relief legislation). The deduction for charitable contribution deduction would be modified.
  • Roth IRA re-characterization rule repealed: The bill would eliminate the ability to re-characterize a Roth IRA contribution as a traditional IRA  contribution.
  • Estate tax: The bill would double the base exclusion (currently $5.49 million per individual) amount to $10 million per individual (indexed for inflation).  Then, the estate tax and generation skipping tax would be repealed for decedents dying after December 31, 2023.
  • Streamlined education incentives: The three higher education credits – the American Opportunity Tax Credit, the Hope Scholarship Credit, and the Lifetime Learning Credit – would be reduced to one “enhanced” American Opportunity Tax Credit. This new version would still provide 100 percent tax credit for the first $2,000 of qualifying higher education expenses and a 25 percent credit for the next $2,000 of such expenses. The AOTC would be limited to five years of post-secondary education.

As always, we will keep you apprised as this legislation moves through Congress.

Sources: Journal of Accountancy, Thomson Reuters/Checkpoint

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