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CHANGES IN TAX LAW AND EFFECTS ON YOU AND YOUR BUSINESS

Posted by Admin Posted on Nov 20 2018

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The new tax reform law, commonly called the “Tax Cuts and Jobs Act” (TCJA), signed into law by President Trump on December 22, 2017, is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.

Below are highlights of some of the most significant changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Individuals

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025 (Please see the tax rate schedules at the bottom of the article, or visit https://www.lbcpa.com/tax-rates  ).
  • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025
  • Elimination of personal exemptions — through 2025
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT (Alternative Minimum Tax)  purposes — for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
  • Elimination of the deduction for interest on home equity debt — through 2025
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) — through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
  • Elimination of the AGI-based reduction of certain itemized deductions — through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
  • AMT (Alternative Minimum Tax) exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025

 

Businesses

  • Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
  • Repeal of the 20% corporate AMT
  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Other enhancements to depreciation-related deductions
  • New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New tax credit for employer-paid family and medical leave — through 2019
  • New limitations on excessive employee compensation
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

More to consider

This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions.

If you have any questions please contact us at 305-274-5811 to review how these changes will affect you in 2018 and beyond.

 

2018 Tax Rates

2018 Tax Rates Schedule X - Single

If taxable income is over

But not over

The tax is

$0

$9,525

10% of the taxable amount

$9,525

$38,700

$952.50 plus 12% of the excess over $9,525

$38,700

$82,500

$4,453.50 plus 22% of the excess over $38,700

$82,500

$157,500

$14,089.50 plus 24% of the excess over $82,500

$157,500

$200,000

$32,089.50 plus 32% of the excess over $157,500

$200,000

$500,000

$45,689.50 plus 35% of the excess over $200,000

Over $500,000

no limit

$150,689.50 plus 37% of the excess over $500,000

2018 Tax Rates Schedule Y-1 - Married Filing Jointly or Qualifying Widow(er)

If taxable income is over

But not over

The tax is

$0

$19,050

10% of the taxable amount

$19,050

$77,400

$1,905 plus 12% of the excess over $19,050

$77,400

$165,000

$8,907 plus 22% of the excess over $77,400

$165,000

$315,000

$28,179 plus 24% of the excess over $165,000

$315,000

$400,000

$64,179 plus 32% of the excess over $315,000

$400,000

$600,000

$91,379 plus 35% of the excess over $400,000

$600,000

no limit

$161,379 plus 37% of the excess over $600,000

2018 Tax Rates Schedule Y-2 - Married Filing Separately

If taxable income is over

But not over

The tax is

$0

$9,525

10% of the taxable amount

$9,525

$38,700

$952.50 plus 12% of the excess over $9,525

$38,700

$82,500

$4,453.50 plus 22% of the excess over $38,700

$82,500

$157,500

$14,089.50 plus 24% of the excess over $82,500

$157,500

$200,000

$32,089.50 plus 32% of the excess over $157,500

$200,000

$300,000

$45,689.50 plus 35% of the excess over $200,000

Over $300,000

no limit

$80,689.50 plus 37% of the excess over $300,000

2018 Tax Rates Schedule Z - Head of Household

If taxable income is over

But not over

The tax is

$0

$13,600

10% of the taxable amount

$13,600

$51,800

$1,360 plus 12% of the excess over $13,600

$51,800

$82,500

$5,944 plus 22% of the excess over $51,800

$82,500

$157,500

$12,698 plus 24% of the excess over $82,500

$157,500

$200,000

$30,698 plus 32% of the excess over $157,500

$200,000

$500,000

$44,298 plus 35% of the excess over $200,000

$500,000

no limit

$149,298 plus 37% of the excess over $500,000

2018 Tax Rates Estates & Trusts

If taxable income is over

But not over

The tax is

$0

$2,550

10% of the taxable income

$2,550

$9,150

$255 plus 24% of the excess over $2,550

$9,150

$12,500

$1,839 plus 35% of the excess over $9,150

$12,500

no limit

$3,011.50 plus 37% of the excess over $12,500

Social Security 2018 Tax Rates

Base Salary

$128,400

Social Security Tax Rate

6.2%

Maximum Social Security Tax

$7,960.80

Medicare Base Salary

unlimited

Medicare Tax Rate

1.45%

Additional Medicare 2018 Tax Rates

Additional Medicare Tax

0.9%

Filing status

Compensation over

Married filing jointly

$250,000

Married filing separate

$125,000

Single

$200,000

Head of household (with qualifying person)

$200,000

Qualifying widow(er) with dependent child

$200,000

Education 2018 Credit and Deduction Limits

American Opportunity Tax Credit (Hope)

$2,500

Lifetime Learning Credit

$2,000

Student Loan Interest Deduction

$2,500

Coverdell Education Savings Contribution

$2,000

Miscellaneous 2018 Tax Rates

Standard Deduction:

 
  • Married filing jointly or Qualifying Widow(er)

$24,000

  • Head of household

$18,000

  • Sinlge or Married filling separately

$12,000

Business Equipment Expense Deduction

$1,000,000

Prior-year safe harbor for estimated taxes of higher-income

110% of your 2017 tax liability

Standard mileage rate for business driving

54.5 cents

Standard mileage rate for medical/moving driving

18 cents

Standard mileage rate for charitable driving

14 cents

Child Tax Credit

$2,000 per qualifying child

Maximum capital gains tax rate for taxpayers with adjusted net capital gain up to $77,200 for joint filers and surviving spouses, $51,700 for heads of household, $38,600 for single filers, $38,600 for married taxpayers filing separately, and $2,600 for estates and trusts

0%

Maximum capital gains tax rate for taxpayers with adjusted net capital gain over the amount subject to the 0% rate, and up to $479,000 for joint filers and surviving spouses, $452,400 for heads of household, $425,800 for single filers, $239,500 for married taxpayers filing separately, and $12,700 for estates and trusts

15%

Maximum capital gains tax rate for taxpayers with adjusted net capital gain over $479,000 for joint filers and surviving spouses, $452,400 for heads of household, $425,800 for single filers, $239,500 for married taxpayers filing separately, and $12,700 for estates and trusts

20%

Capital gains tax rate for unrecaptured Sec. 1250 gains

25%

Capital gains tax rate on collectibles and qualified small business stock

28%

Maximum contribution for Traditional/Roth IRA

$5,500 if under age 50
$6,500 if 50 or older

Maximum employee contribution to SIMPLE IRA

$12,500 if under age 50
$15,500 if 50 or older

Maximum Contribution to SEP IRA

25% of compensation up to $55,000

401(k) maximum employee contribution limit

$18,500 if under age 50
$24,500 if 50 or older

Self-employed health insurance deduction

100%

Estate tax exemption

$11,180,000

Annual Exclusion for Gifts

$15,000

Foreign Earned Income Exclusion

$104,100

If you have any questions regarding Essential Business Accounting, Domestic Taxation, International Taxation, IRS Representation, U.S. Tax Implications of Real Estate Transactions or Financial Statements, please give us a call at 305-274-5811.

Source: Thomson Reuters

The information provided on the LBCPA Blog is a community service for general information purposes only, and should not be used as a substitute for consultation with professional advisors who specialize in the topics covered. Please refer to your advisors for specific advice on these subjects. The information is not intended to be used, and it cannot be used, for the purposes of avoiding U.S. Federal and/or State tax laws or the tax laws of any foreign jurisdiction.

These blogs contain general information only and Lord Breakspeare Callaghan LLC or any of the other companies or firms presenting information are not providing accounting, business, financial, investment, legal, tax, or other professional advice or services. Lord Breakspeare Callaghan LLC or any of the other companies or firms contributing with articles shall not be responsible for any loss sustained by any person who relies on this information.

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