On December 15th, the Conference Committee reconciled and merged the differing House and Senate provisions into a single piece of legislation and released the final version of the “Tax Cuts and Jobs Act”, a sweeping tax reform proposal.
It is anticipated that the House will vote on this today and the Senate will vote on Wednesday and it will be signed into law before Christmas.
As of right now, subject to change at the whim of Congress, the following are some tax changes that will be effective and some possible planning ideas.
For tax years beginning after December 31, 2017, the corporate tax rate is a flat 21% rate and the corporate AMT is repealed.
For qualifying property placed in service in tax years beginning after December 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million.
A 100% first-year depreciation deduction for the adjusted basis is allowed for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. Thus, the phase-down of the 50% allowance for property placed in service after December 31, 2017 is repealed. The additional first-year depreciation deduction is allowed for new and used property.
For individuals for tax years beginning 2018 through 2025, seven tax brackets apply: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
For tax years beginning 2018 through 2025, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018.
For tax years beginning 2018 through 2025, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero.
The Act generally retains present-law maximum rates on net capital gains and qualified dividends.
For tax years beginning 2018 through 2025, the child tax credit is increased to $2,000. The income levels at which the credit phase out is increased to $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers). In addition, a $500 nonrefundable credit is provided for certain non-child dependents. The amount that is refundable is increased to $1,400 per qualifying child, and this amount is indexed for inflation, up to the base $2,000 base credit amount.
For tax years beginning 2018 through 2025, subject to the exception described below, state, local, and foreign property taxes, and state and local sales taxes, are deductible only when paid or accrued in carrying on a trade or business.
However, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of
State and local property taxes not paid or accrued in carrying on a trade or business and
State and local income or sales tax. If an individual is not subject to alternative minimum tax (AMT), it might be a good year to pay the March 2018 property tax and the 4th quarter state income tax estimate before year end.
For tax years beginning after December 31, 2017 and before January 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended. This would include investment expenses, tax preparation fees, unreimbursed employee expenses and safe deposit box fees. If you have been able to benefit from these deductions in the past and are not subject to AMT, it might be a good year to prepay this type of expense before year end.
If you have itemized deductions in the past but will not in the future with the higher standard deduction, it might also be a good year to accelerate charitable giving to 2017 that you would otherwise pay in 2018.
We will issue a special edition after the final votes by Congress to let you know it has passed and if there are any changes.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein