The Trump Tax Plan is the biggest tax change since 1986

The House of Representatives passed the "Tax Cuts and Jobs Act of 2017," (Trump Tax Plan) on December 20, 2017. It's the biggest piece of tax legislation since Ronald Reagan's Tax Reform Act of 1986.

The new tax bill makes small decreases in tax rates for most brackets for individuals, but creates much bigger savings for corporations, including the elimination of the corporate alternative minimum tax. Small businesses implementing a pass-through tax strategy will also find significant savings. So will businesses with significant income generated outside the United States.

Some of these reductions are only temporary and they come at the expense of some long-relied-on tax breaks.

Most of the changes take effect beginning 2018. Here are the highlights:

Tax Changes for Individuals and Couples

Changes effective through 2025:

  • Tax rates are reduced up to 4% depending on the bracket (some have no changes), with a range of tax rates from 10% to 37%
  • Standard deductions have increased significantly:
    • Married couples filing jointly—$24,000 from $12,700
    • Single or married filing separately—$12,000 from $6,350
    • Heads of household—$18,000 from $9,350
  • Personal exemptions are gone
  • The child tax credit has doubled for dependent children—up to $2,000 per child
  • State and local tax deductions available to itemized filers, which were unlimited before, now have a $10,000 limit
  • The mortgage debt limit is reduced from $1,000,000 to $750,000
  • The deduction for interest on home-equity debt is gone
  • The individual casualty and theft-loss deductions are gone (unless it is for federally declared disasters)
  • Several miscellaneous itemized deductions that only apply if they equate to 2% of your AGI are gone (like certain investments, professional fees, and unreimbursed expenses incurred through employment)
  • The moving expense deduction is gone unless you are in the military
  • The alternative minimum tax exemption increased:
    • Married couples filing jointly—$109,400 from $84,500
    • Single or head of household—$70,300 from $54,300
    • Married filing separately—$54,700 from $42,250
  • The gift and estate tax exemptions have doubled to $10 million

Other changes:

  • Taxpayers who would otherwise have to pay a penalty for not having coverage under the Affordable Care Act will no longer have to pay a penalty (effective 2019)
  • The medical expense deduction threshold is reduced from 10% of adjusted gross income to 7.5% (effective 2017 and 2018 only)
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
  • Section 529 plan distributions now enjoy broader coverage, including expenses for expenses for elementary and secondary school, up to $100,000 per student annually

Tax Changes for Businesses

  • Owners of partnerships, LLCs, S Corps and sole proprietorships can take advantage of a new 20% qualified business income deduction (through 2025)
  • Corporate tax rate is now a flat 21% instead of graduated from 15% to 35%
  • The corporate alternative minimum tax is gone
  • Assets acquired and placed in service between September 27, 2017 and January 1, 2023 have a bonus depreciation to 100%, even if purchased used
  • The Section 179 expense limit is doubled to $1,000,000 (the expensing phaseout threshold is increased to $2,500,000)
  • The deductions for net-interest expense greater than 30% of a business's adjusted taxable income is gone (subject to exceptions)
  • Net operating loss deductions are limited to 80% of taxable income
  • The domestic production activities deduction/manufacturers' deduction (§ 199 deduction) is being phased out over the next year
  • Employer-paid family and medical leave now has its own tax credit through 2019
  • The performance-based compensation and commission exceptions to the $1,000,000 deduction companies enjoyed when they paid certain executives in excess of $1,000,000 is repealed
  • Employee fringe benefit deductions have new limitations

These are only some of the most basic changes effective with the Trump Tax bill. Contact us to take full advantage of the new bill.