As of this writing, the tax bill has not yet been signed into law.  Assuming that it will, many of our clients are unsure of what the key points are and how they will be impacted.  If the bills are reconciled and a final version is signed before Christmas, as anticipated, the legislation would generally be effective on 1/1/2018.   It’s very important to note that this will impact 2018 tax filings, not your 2017 returns due this spring.  Here is a summary:

 

FOR INDIVIDUALS

 

Tax Rates:  The Senate settled on a seven-rate structure, the same as exists now, but it lowered the rates and configured the income levels for brackets. For instance, the top rate would be pared from 39.6% to 38.5%. Notably, the tax cuts aren’t permanent, and the rates would revert to today’s figures after 2025.

– 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
– 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
– 22% (over $38,700 to $70,000; over $77,400 to $140,000 for couples)
– 24% (over $70,000 to $160,000; over $140,000 to $320,000 for couples)
– 32% (over $160,000 to $200,000; over $320,000 to $400,000 for couples)
– 35% (over $200,000 to $500,000; over $400,000 to $1 million for couples)
– 38.5% (over $500,000; over $1 million for couples)

Standard deduction and personal exemptions: The standard deduction is effectively being doubled to $12,000 for single filers and $24,000 for joint filers. Personal exemption is completely eliminated.

State and local taxes: Most state and local taxes, including income taxes, is no longer deductible. A maximum deduction of $10,000 would be allowed for property taxes.

Child tax credit: The Senate bill doubles this credit to $2,000.

Medical deductions: The Senate bill keeps the medical deduction and restores the 7.5%-of-AGI threshold temporarily for 2018.

Capital gains/losses: In a little-noticed but important change, investors would have less flexibility in establishing capital gains and losses from certain securities sales. Instead of being able to identify the shares being sold when you own multiple blocks of the same security, you will have to treat the first shares acquired as being the first ones sold. This could result in larger taxable gains or smaller losses due to the sale of low-basis shares. A comparable rule would apply to charitable donations of securities.

Estate tax exemption: For 2018, the estate tax exemption can shelter up to $5.6 million of assets from estate tax. This exclusion would be raised almost two-fold to $11 million.

Increases teacher deduction: Teachers who buy their own supplies for the classroom may deduct up to $250 today. The Senate bill doubles that amount to $500. 

Education savings: Allows education funding under Section 529 plans to include K-12 elementary and secondary school tuition for public, private and religious schools as well as homeschooling.

Health insurance mandate: The insurance requirement under the Affordable Care Act (ACA), the law known as Obamacare, would be abolished.

Other Deductions: A long list of other tax breaks would be repealed, including tax deductions for tax advice and job-related moving expenses.

 

FOR BUSINESS

 

Corporate tax rates: The top tax rate for corporations would plummet from 35% to 20%. Unlike the individual tax rates, this reduction would be permanent.  

Business expensing: The Senate bill allows a current write-off for business expenses under Section 179 for a period of five years followed by a phase-out.  

Pass-through entities: Pass-through entities such as partnerships, S corporations and limited liability companies (LLCs) would be able to take a 23% deduction on earnings. This provision is equipped with “guardrails” restricting professional service firms.

Credo has always been here to help you navigate the complex tax code. We continue to have our best people researching the best ways to mitigate your tax bill and keep you compliant with the new tax code.  Contact us today at 678-802-8800 if you would like assistance in understanding the specifics of the new tax bill and its impact on your personal situation.

Cheri Turner

Cheri Turner

Vice President Operations at Credo Financial Services
Under Cheri’s leadership, Credo provides world-class delivery and service to Accounting, Business Services, Tax and CFO clients alike. An organized and positive person, Cheri has a passion for providing clients with the information necessary to make decisions that grow their businesses.

Cheri spent more than 10 years at Wachovia Corporation (now Wells Fargo). She had roles ranging from Budget Analyst to Director of Management Reporting to Deposit Pricing Manager. There, she was recognized as a leader through multiple process redesigns saving hundreds of work hours. Using a combination of grass roots training and online tools, Cheri also streamlined the exception process resulting in growth of deposits and client base.

Later, Cheri continued to hone her financial modeling and business analysis skills at Equifax, serving as their corporate budget and forecast owner. She maintained and analyzed the three-year corporate model running multiple acquisition and decision point scenarios. Her customer service focus led her to a role supporting the marketing and legal functions where she became a trusted advisor and facilitator.
Cheri Turner