Tax Cuts and Jobs Act

As we kick off the 2019 filing season under the Tax Cuts and Jobs Act (TCJA), it’s hard to say if you’ll see an increase or decrease in your taxes, or if your tax return will become simplified or more complex. But what we know for sure is, ALL taxpayers will be affected by the new legislation!

The TCJA has provided new opportunities for tax savings and tax planning for you and your business. Below is a brief summary of some provisions in the Act. In addition, the IRS has interpreted several provisions of the tax bill, which may provide answers to your questions. Unfortunately, we’re still awaiting interpretation and guidance on some of the more complicated areas of the new law and it’s unlikely we’ll get anymore direction from the IRS before tax season begins.

Tax Provisions Affecting Individuals for 2018

  • There are still seven tax brackets, but the tax rates are lowered to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
  • The standard deduction has almost doubled from the prior year to $12,000 for individuals and to $24,000 for married couples.
  • Personal and dependency exemptions are eliminated.
  • Child Tax Credit has increased to $2,000 and expands the refundable tax portion of the credit to $1,400.
  • Alternative Minimum Tax (AMT) exemption amount has been increased to $109,400 for married filling joint and surviving spouses and $70,300 for other filers.
  • Individual Healthcare Mandate penalty has been eliminated for individuals who fail to maintain minimum essential health care coverage, but only for years after 12/31/2018. The penalty is still applicable for 2018.
  • Earned Income Tax Credit is still available for low to middle-income wage earners, which can be over $6,000 for a family with three kids.
  • Taxpayers, who itemize, can deduct up to $10,000 in state and local income taxes, sales tax and real estate taxes.
  • Mortgage interest deduction is capped on new home loans of $750,000, and no longer includes home equity line of credit (HELOC) interest.
  • A deduction is allowed for qualified medical expenses in excess of 7.5% of adjusted gross income.

Tax Provisions Affecting Business Owners for 2018

  • Lowers the corporate tax rate to 21%, and the tax rate for Personal Service Corporations is also lowered to 21%.
  • Repeals Corporate Alternative Minimum Tax (AMT).
  • Allows sole proprietors and passthrough businesses a 20% deduction of its Qualified Business Income (QBI). Specified Service Trades and Businesses (SSTB) are not eligible for the deduction, if the taxpayer’s taxable income before the QBI deduction is over $415,000 if filing MFJ or over $207,500 if filing Single, HOH, or MFS.
  • Expands the limits on cash accounting and removal of some of the requirements to track inventory.
  • Allows businesses to fully expense qualified purchases for the 5 years after 2017.
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