The new tax law contains an enormous amount of change for businesses and individuals — some positive and some negative, depending on each situation. 415 Group Supervisor Sarah Sowers, CPA, MBA, explains some of the key provisions.
When we talk about businesses, there are all different types of entities, so items that affect corporations are going to be different than those that affect s-corporations or partnerships. The new law contains a reduction of the corporate tax rate, which we generally think of as a good thing, but the flipside is it eliminates some of the deductions that businesses may be used to.
Another big change involves depreciation. Bonus depreciation is currently at a rate of 50 percent, but for property acquired after Sept. 27, 2017, that will increase to 100 percent. The law also expands qualified assets to include used assets, not just new.
For flow through entities — like s-corporations, partnerships, and LLCs — there’s a new 20 percent business income deduction. You could do a whole presentation on just that component. It’s very complicated. While some businesses may be entitled to this deduction, be aware that there are still a lot of limitations and exceptions.
For individuals, the law increases the standard deduction to $24,000 for joint filers. If you’re someone without a lot of itemized deductions, then this is a good thing for you. But for someone who has a higher amount of itemized deductions, they’re going to be concerned with the $10,000 limit on state, local and property tax deductions. It’s a big change.
This law is called the Tax Cuts and Jobs Act, but not every single person or business is going to see a tax cut. There are certain items that you’re getting more benefit from, but you’re also losing certain benefits. Without proper planning and advice, some taxpayers could pay more tax if they aren’t looking at the details.
If you have specific concerns, please reach out to our team at 415 Group. There will be more information coming out throughout the year, so we’ll help our clients stay prepared.
The new tax reform law — commonly referred to as the "Tax Cuts and Jobs Act" (TCJA) —is the most significant tax legislation in decades. Now businesses and individuals are trying to digest the details and evaluate how the changes will impact their tax situation.
Fortunately, your tax advisors can help you figure things out. Let's start with a basic overview of what's covered in the new law. (Except where noted, these changes are effective for tax years beginning after December 31, 2017.)
In general, the law significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax (AMT). It also provides a large new tax deduction for owners of pass-through entities and makes major changes related to the taxation of foreign income. But it also reduces or eliminates many business tax breaks.
Some of the key business-related changes include:
For Individuals and Estates
The new law makes small reductions to income tax rates for most individual tax brackets, and it significantly increases individual AMT and estate tax exemptions. But there's also some bad news for individuals: The TCJA eliminates or limits many tax breaks. In addition, much of the tax relief for individual taxpayers will be available only temporarily.
Here are some of the key changes; except where noted, these changes will sunset after 2025:
In addition, the new law permanently eliminates the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty. The elimination of the individual mandate is effective for months beginning after December 31, 2018. Also permanent is the 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.
The new tax law is broad-reaching and complicated. And more tax reform may be coming. Other proposals that Republican congressional leaders have discussed would address retirement and education savings, reorganize the IRS, delay some taxes funding the Affordable Care Act (such as the medical device tax and the health insurance provider fee), prevent abuses of the earned income tax credit and extend the benefits of some tax credits for renewable energy property, nuclear energy production and biodiesel.
In this time of change, your tax advisor can be a valuable resource, helping you stay atop the latest developments.