New Tax Laws for Tax Cuts and Jobs Act
It’s certainly an interesting time to be a CPA. The provisions of the Trump tax act bring added complexity to areas of the law that were not simple, to begin with.
Tax planning opportunities
President Trump signed the most sweeping new tax legislation that the US has seen since the Reagan presidency over 30 years ago. Most individuals will see their taxes decrease and for most, there will not be many tax planning opportunities. Most people’s income taxes will simply be reduced.
Individual taxpayers should not expect bigger refunds next spring, as the withholding tables have already significantly reduced the amount of income tax that has been withheld. In fact, many will wind up owing more tax with their 2018 returns, not because the new tax laws are increasing the tax, but because withholding has been decreased so much. You may want to consider increasing the tax withholding from your paychecks.
If you need some assistance with this, please give us a call and we can walk you through the process.
For those with businesses, there are substantial planning opportunities this year. However, the new law is not simplification. If you have any type of business (including rentals) there are big opportunities to save tax, but you may have to tweak how your business is structured, how it is owned, payroll and/or how you pay yourself to maximize your tax savings. If you would like to schedule a time to go over the opportunities that might apply to you, please call us at (208) 265-5959 or e-mail at [email protected].
Like all major new tax law, what comes out of Congress is “half-baked”. Some of the provisions of the new law conflict, some important issues are not addressed. As always happens with complex new tax law, the IRS must write regulations to fill in the gaps. We expect the IRS to release those regulations by the end of July. Once we have those regulations in hand we will be contacting many of our business clients to discuss any possible changes to help achieve the maximum tax savings.
The rules of the monopoly game have changed – we want to help you win! Give the team at Williams & Parsons, PC, CPAs a call at (208) 265-5959 to find out how today.
Below is a brief synopsis of the new law. The synopsis is limited; the new law is much more convoluted.
Business Tax Provisions
Corporate tax rates: Corporate tax rates are drastically reduced. Corporate income is now taxed at a flat rate of 21%, under prior law, tax rates ranged up to the highest rate of 35%.
Pass-through entities: Under the new law, pass-through entities – such as partnerships, S corporations, limited liability companies (LLCs) and sole proprietors – can claim a 20% deduction on earnings, subject to special rules and restrictions. The deduction is not available to higher-income personal service providers. This is the big potential deduction. This is also the most complex provision. This is where advance planning will really pay off. The CPAs at Williams & Parsons are here to help – give us a call!
Section 179 deduction: The new law doubles the maximum Section 179 “expensing” allowance from $500,000 to $1 million. It also increases the phase-out threshold for Section 179 deductions from $2 million to $2.5 million.
Bonus depreciation: Similarly, the new law doubles the first-year “bonus depreciation deduction” from 50% to 100%, but phases it out after five years. The deduction generally won’t be available after 2026.
Entertainment deductions: The deduction for business-related entertainment is repealed. Businesses can still generally deduct 50% of the cost of qualified meals.
Individual Tax Changes
Tax rates: The new tax laws lower tax rates for individuals and adjusts tax bracket amounts.
Standard deductions: The standard deduction is generally doubled to $12,000 for single filers and $24,000 for joint filers.
Personal exemptions: Personal exemptions, including exemptions for qualified dependent children and relatives, are not allowed under the new law.
Alternative minimum tax: The alternative minimum tax (AMT) system is retained, but exemption and thresholds are increased, so many fewer will pay AMT.
Child tax credit: The child tax credit (CTC) is doubled from $1,000 per qualified child to $2,000, subject to a phase-out for high-income taxpayers. Previously the CTC was fully refundable — now $1,400 of the $2,000 is refundable.
State and local taxes: The new laws also limit the deduction for state and local income taxes to $10,000 annually for any combination of state and local property taxes or state and local income taxes or sales taxes.
Mortgage interest: The new law limits the mortgage interest deduction to interest paid on the first $750,000 of acquisition debt, down from $1 million. It also eliminates deductions for interest paid on home equity debt, other than debt used to buy, build or improve your home.
Estate tax: The federal estate tax exemption is doubled, resulting in an inflation-indexed exemption of $11.2 million in 2018.
ALL of the changes to tax law for individuals simply expire at the end of 2025. Most of the business tax changes are PERMANENT.
To learn more about our expat tax services visit our SERVICES page.