Tax Cuts and Jobs Act Introduced
On November 2nd, 2017, the Tax Cuts and Jobs Act was introduced to the House of Representatives. Most of the provisions in the bill are effective for the 2018 tax year with one significant provision being retroactive to September 27, 2017, the full expensing of qualified business property. While the bill is not a law yet, we expect that most of the provisions you see in the first version will make up the new law with a few minor changes. We will continue to monitor the bill as it is edited by the Senate and continue to keep you updated as any tax planning opportunities present themselves. The bill itself is over 400 pages but below is a summary of the changes from the MICPA.
• 4 tax brackets: 12%, 25%, 35% and 39.6% (on over $1,000,000 of income);
• Child credit increased to $1,600, non-child dependent credit of $300; $1,000 is refundable; (income limits apply);
• Personal exemptions eliminated;
• Alternative Minimum Tax (AMT) eliminated;
• Student loan interest and tuition deduction eliminated.
• Phase out of the 12% bracket for high earned over $1M (single) and $1.2M;
• Brackets indexed for chained CPI;
• Married filing separate is now like single;
• Head of Household filing status has its own bracket and uses the single standard deduction;
• Standard deduction increased to $12,000 for single, $18,000 for single with qualifying child and $24,000 for married;
• Itemized deductions limited to mortgage interest (existing mortgages and new mortgages up to $500,000), property taxes (up to $10,000), and charitable contributions (and only deductible if they exceed the standard deduction);
• The following itemized deductions are eliminated: medical, casualty losses, tax preparation, unreimbursed employee business expenses, state and local income taxes;
• Alimony is not deductible, nor included in income;
• Moving expense deduction is repealed;
• Principal residence exclusion changed;
• Repeal of the age 65 with disability credit, adoption credit, and electric plug-in vehicle credit eliminated.
Estate and Gift tax:
• Doubles the exemption now for estate taxes and generation-skipping taxes, phases the estate tax out by 2023;
• Step-up basis is retained, even after repeal.
• Gift tax has same exclusion (~$11M), rate lowered to 3%. $14,000 excluded gift remains.
• Corporate tax rate cut to 20%;
• Pass-through taxes for Subchapter S and LLCs at 25%. 70% of pass-through income is assumed to be earned income and subject to individual rates. For personal services, like doctors, lawyers, and accountants, all income is presumed to be earned income and subject to ordinary individual rates. An alternate calculation is available to apply a capital percentage;
• Full expensing of qualified property, starts 09/27/17, expires in 2023;
• Deductibility of interest limited to 30% of business taxable income (exemption for businesses with less than $25M of revenue);
• Like-kind exchanges now only for real estate;
• Changes to business entertainment deductions;
• Employer child-care credit repealed;
• Territorial tax for multinationals;
• Deemed repatriation of offshore profits (12% tax on cash and 5% on other assets)
• Cash basis of accounting expanded to businesses with revenues under $25M;
• Research and development (R&D) credit and low-income housing credit retained.
• Corporate AMT eliminated;