President Trump Signs Tax Cuts And Jobs Act

Republicans in Congress have blended separate tax bills passed by the House and Senate into compromise legislation that seeks to achieve a sweeping overhaul of the nation’s tax code. Below is a summary of some of the key provisions of the Conference Agreement that will impact individuals and businesses. President Trump signed the bill into law on December 22nd.

INDIVIDUALS CONFERENCE AGREEMENT
Individual Tax Rates Provides for seven (7) tax brackets ranging from 10% to 37%. Highest rate at $600,000 married-joint and $500,000 single. The rate structure will apply in 2018-25.
Alternative Minimum Tax (AMT) Increases the AMT exemption and phase-out amounts for 2018-25. Does not repeal tax.
Capital Gain/Qualified Dividend Rate No change.
Like-Kind Exchanges Limits applicability to like-kind exchanges of real property that is not held primarily for sale.
Pass-Through Income Deduction for 20% of qualified business income from a partnership, S corporation or sole proprietorship subject to limits based on W-2 wages and capital acquisitions.
Standard Deduction $24,000 for joint returns.
$18,000 for head of household.
$12,000 for single filers.
Temporary increase for 2018-25.
Personal Exemption Suspends the personal exemption for tax years 2018-25.
Home Sale Exclusion No Change.
Alimony For divorce or separation instruments executed after December 31, 2018, alimony will no longer be deductible by the payor, nor will it be includible in income of the payee.
Home Mortgage Interest The deduction for interest expense on post-December 15, 2017 home mortgage debt would be limited to $750,000 of principal for 2018-25. For debt incurred before December 15, 2017 and after 2025, this limitation is $1,000,000. The deduction for home equity loan interest is suspended from 2018-25.
State and Local Taxes The itemized deduction for state and local income, property and sales taxes is limited in total to $10,000 for 2018-25.
Medical Expenses For 2017 and 2018, the threshold for deducting medical expenses is 7.5% of Adjusted Gross Income (AGI).
Miscellaneous Itemized Deductions Suspends all itemized deductions subject to 2.0% of the AGI floor for 2018-25.
Charitable Contributions Increases the limit on cash charitable contributions from 50.0% to 60.0% of AGI.
Limitation for Itemized Deductions Suspends the phase-out of itemized deductions for 2018-25.
Child Tax Credit For 2018-25, the credit increases to $2,000 for a child under 17 with $1,400 refundable. Phase-outs begin at $400,000 married-joint.
Estate Tax Increases the estate tax exemption from $5M to $10M (indexed for inflation) for 2018-25.
Affordable Care Act (ACA) Repeals the individual mandate of the ACA effective 2019.
BUSINESSES
Corporate Tax Rates Lowers corporate rate to 21.0%.
Alternative Minimum Tax (AMT) The corporate AMT is repealed.
Dividends Received Deduction (DRD) The 80% DRD is reduced to 65% and the 70% DRD is reduced to 50%.
Business Interest Expense Deduction Limits the interest deduction for businesses with gross receipts over $25M to interest income plus 30% of adjusted taxable income.
Net Operating Losses (NOL) The NOL deduction will be limited to 80% of taxable income with no carrybacks.
Depreciation – Real Property Maintains present law MACRS recovery periods of 39 years and 27.5 years for nonresidential real and residential rental property.
Section 179 Deduction (current limit: $500K and phaseout of $2M) Increases the maximum deduction to $1 million and phaseout to $2.5 million.
Temporary Expensing for Business Assets (Bonus) The cost of certain capital expenditures would be 100.0% deductible for 5 years and phased down 20% per year for the next 5 years.  This provision applies to property placed in service after September 27, 2017.
Cash Method of Accounting The cash method of accounting gross receipts threshold would increase to $25 million.
Accounting for Long-term Contracts The $10M average gross receipts exception to the requirement to use the percentage-of-completion method is increased to $25M.

 

While most of the provisions won’t go into effect until 2018, you can take steps now to minimize your total tax bill for 2017.  Below is a discussion of a few general planning opportunities.  Note that everyone’s situation is different and not every action will reap a tax benefit.

  • Year-end capital investment planning. Consider purchasing assets that may qualify for 100% bonus depreciation or the Section 179 expensing election.
  • Acceleration of itemized deductions. Consider timing of itemized deductions that are being repealed such as state and local taxes.
  • Deferral of income. This strategy is especially relevant this year since many are expected to have lower marginal tax rates next year under the new bill.
  • Percentage of completion method. Consideration should be given in 2018 as to a change in a method of accounting due to increased thresholds.

We very much appreciate the opportunity to serve you. Please contact Wouch, Maloney & Co., LLP at 215-675-8364 with any questions regarding the tax reform legislation, year-end tax planning or for assistance with any other tax, financial or accounting issues.

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