Back to top

Jones & Company Blog

Click here to go back

Tax Cuts and Jobs Act - Final

Posted by Traci A. Malik Posted on Dec 22 2017

Tax Cuts & Jobs Act

By Traci A. Malik, CPA/CFF CFE MAcc

 

This new bill certainly does not “simplify” the tax return preparation for taxpayers. There will be no postcard mailings in the near future. There are so many changes in this bill, that this article cannot cover in depth all of them. There is a wealth of information out there on the bill, so I will include some of the important highlights.

Brackets -- There are new tax brackets that will lower tax for everyone, 10%, 12%, 22%, 24%, 32%, 35%, 37%. The taxable income for each bracket has been expanded. For example, if you are a married couple with taxable earnings of $165,000 you will be in the 22% bracket instead of the 28%.

Rate

Individuals

Married Filing Jointly

10%

Up to $9,525

Up to $19,050

12%

$9,526 to $38,700

$19,051 to $77,400

 22%

38,701 to $82,500

$77,401 to $165,000

24%

$82,501 to $157,500

$165,001 to $315,000

32%

$157,501 to $200,000

$315,001 to $400,000

35%

$200,001 to $500,000

$400,001 to $600,000

37%

over $500,000

over $600,000

Standard Deduction – Married Filing Jointly             $24,000

                                      Head of Household               $18,000

                                      All Others                              $12,000

These new standard deductions are increased significantly, but they took away all personal exemptions. For example a married couple that uses the standard deduction and has one child.

            Pre New Law (2017 amounts)             $12,700 + ($4,050 x 3) = $24,850

            New Law                                              $24,000

            Loses out on $850 deduction

Another example for a single person no dependents that has itemized deductions.

            Pre New Law                                       $11,300 + $4,050 = $15,350

            New Law                                             $12,000

            Loses out on $3,350 deduction

An example where it helps taxpayers is a married couple using the standard deduction and has no children.

            Pre New Law                                       $12,700 + ($4,050 x 2) = $20,800

            New Law                                              $24,000

            Adds a $3,200 deduction for them.

This facet of the law will depend on the circumstances for each taxpayer if there are any savings.

Personal Casualty & Theft Losses – You will only be allowed casualty losses for Federally-declared disasters unless you have personal casualty gains on something then you can offset the gains with losses but cannot exceed the gain. So where before you could possibly get a deduction if you had a theft or a pipe broke and insurance didn’t cover it, now you don’t.

 

Child Tax Credit – They increased the credit which will make up for some of the loss on the exemptions for children. They increased the credit to $2,000 and increased the phase-outs. The new phase-outs are $400,000 for joint and $200,000 for all others.

You can also get a $500 credit for non-child dependents.

State & Local Tax Deduction – Capped at $10,000 for all except married filing separately and $5,000 for married filing separately.

Mortgage & Home Equity Indebtedness Interest Deduction – No deduction allowed for home equity indebtedness. New mortgages after 1/1/2018 indebtedness for deduction capped at $750,000 joint filers and $375,000 for married filing separately. If you purchase a home and have a mortgage for $1,000,000 in October of 2018, the interest on $250,000 of the mortgage is not deductible.

Medical Expense Deduction – The 7.5% of adjusted gross income limitation has been reinstated for all taxpayers, but only for years 2017 and 2018.

Alimony Deduction – For any divorce or separation agreement executed after 12/31/18, the alimony paid by the payor is no longer deductible and the amounts paid to the payee are no longer includible in income.

 

Miscellaneous Itemized Deductions – All suspended.

Overall Limitation on Itemized Deductions – Suspended.

Moving Expense Deduction – Suspended.

Healthcare Individual Mandate – Repealed beginning 1/1/2019

C Corporate Tax Rate – 21%

C Corporate Alternative Minimum Tax – Repealed.

Section 179 – 1 Million

Net Operating Loss – Limited to 80% of taxable income.

Domestic Production Activities – Repealed

Entertainment Expenses – Disallowed for any activities considered entertainment, amusement, or recreation.

Membership Dues – Disallowed for any club organized for business, pleasure, recreation, or other social purposes.

Qualified Transportation Fringe Benefits – Disallows deduction for this fringe benefit to employees.

20% Deduction for Qualified Business Income – The following is courtesy of Alan Gassman, Esq. of Gassman, Crotty & Denicolo, PA lawfirm in Clearwater, FL. Generally speaking, under 199A taxpayers will receive up to a 20% deduction on what is referred to as qualified business income.

The following businesses or professions will not have the benefit of this deduction, unless the individual taxpayer receiving flow through income has taxable income below $415,000 for taxpayers married filing jointly or $207,500 for single filers:

    1.    Health

    2.    Law

    3.    Accounting

    4.    Actuarial science

    5.    Performing arts

    6.    Consulting

    7.    Athletics

    8.    Financial services

    9.    Brokerage services

   10.    Any trade or business where the principal asset is the reputation or skill of one or more employees

  11.    Any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities. 

For non-service businesses and joint taxable income of $315,000 or less or $157,500 or less for single filers, then the deduction will most often be calculated by multiplying the taxpayer’s qualified business income by 20%.

If the taxpayer’s taxable income before such deduction exceeds $415,000 for married taxpayers filing jointly or $207,500 for single filers then the Combined Qualified Business Income Amount is limited to the lesser of: 

    (1)    20% of the taxpayer’s qualified business income with respect to the qualified trade or business 

        OR 

    (2)    The greater of:

        A.    50% of the W-2 wages with respect to the qualified trade or business 

            OR

        B.    the sum of 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis immediately after the acquisition of all qualified property.  

Alan Gassman, Esq’s firm is providing a flow chart they prepared to guide people through this code section. Please click here to access.

If you have any questions, please contact our team of CPAs at (727) 845-4166 to help you. Happy Holidays!

Add New Comment