December 22nd, 2017
Today President Trump signed The Tax Cuts and Jobs Act into law. It will take some time to analyze the new law and its many implications, however below are some highlights:
Effective Date: Most changes take effect in 2018 with little impact in 2017.
New Tax Brackets: New tax brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The top bracket starts with Taxable Income exceeding $600,000 for those Married Filing Jointly and $500,000 for those filing Single. In 2017, tax brackets are: 10%, 15%, 25%, 28%, 33%, 35% & 39.6%.
Standard Deduction & Personal Exemption: The personal exemptions are eliminated however the standard deduction threshold is increased to $12,000 for Single filers, $24,000 for Married Filing Jointly and $18,000 for Head of Household filers.
SALT Deductions (state and local income and sales taxes): A $10,000 cap on state and local income taxes, property taxes and sales tax.
Mortgage Interest: Interest on new mortgages of $750,000 will be deductible. The current limit is $1 million.
Medical Expense Deduction: A deduction will be allowed for high out-of-pocket medical expenses which exceed 7.5% of AGI (Adjusted Gross Income) for 2017 and 2018 and then increase to 10% of AGI starting in 2019.
Corporate Tax Rate: The top corporate tax bracket has been permanently reduced from 35% to 21%.
Repeal of Affordable Care Act Requirement: The new law repeals the requirement in the Affordable Care Act that a penalty is to be paid if one does not maintain health insurance, starting in 2019.
Alternative Minimum Tax: The act includes the Alternative Minimum Tax for individuals, but increases the income levels for who is affected.The corporate alternative minimum tax is eliminated.
Child Tax Credit: The child tax credit doubles from $1,000 to $2,000 per child and is refundable up to $1,400. The deduction phases out starting at $400,000 of income for those married filing jointly.
Estate Tax: The estate tax exemption doubles to $11.2 million per person.
Pass-Through Entities: A 20% business income deduction would be included for pass-through companies on the first $315,000 of income.
Education Deductions: The new law allows for 529 college savings accounts to be used for K-12 private school tuition in addition to college expenses. Other major education deductions and credits are not affected.
Sunset Provision: Certain provisions will end in 2026 and return to prior tax law, unless changes are made in the future.
We will continue to analyze the impact of this new law and bring you planning ideas. We recommend you contact your accountant for specific tax planning that is appropriate for you.