President Trump signed the Tax Cuts and Jobs Act “Tax Act” into law on December 22, 2017. The Tax Act provides the most significant tax reforms since the Tax Act of 1986. These new laws are generally effective on January 1, 2018.
For the purposes of US GAAP and IFRS, the law is enacted and substantially enacted respectively. As such, the new laws may impact financial statements ending December 31, 2017.
The following policy highlights were provided by the House and Senate Conference Committee.
For individuals, the Tax Cuts and Jobs Act:
- Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Significantly increases the standard deduction from $6,500 and $13,000 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
- Continues to allow the write off of state and local taxes – up to $10,000.
- Expands the Child Tax Credit from $1,000 to $2,000 for single filers and married couples. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000. Parents must provide a child’s valid Social Security Number in order to receive this credit.
- Continues the Child and Dependent Care Tax Credit
- Preserves the Adoption Tax Credit
- Preserves the mortgage interest deduction –
- For homeowners with existing mortgages that were taken out to buy a home, there will be no change to the current mortgage interest deduction.
- For homeowners with new mortgages on a first or second home, the home mortgage interest deduction will be available up to $750,000.
- Expands the medical expense deduction for 2017 and 2018 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2019.
- Continues and expands the deduction for charitable contributions
- Eliminates the individual healthcare mandate penalty tax
- Maintains the Earned Income Tax Credit to provide tax relief for low-income
- Improves savings vehicles for education by allowing the use of 529 accounts to save for elementary, secondary and higher education.
- Continues to exempt the value of reduced tuition from taxes for graduate students.
- Retains retirement savings options such as 401(k)s and Individual Retirement Accounts (IRAs).
- Increases the exemption amount from the Alternative Minimum Tax (AMT)
- Doubles the amount of the current estate tax exemption
For businesses, the Tax Cuts and Jobs Act:
- Lowers the corporate tax rate to 21% (beginning Jan. 1, 2018) – down from 35%
- Offers a 20% tax deduction that applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs, and sole proprietorships. For businesses with income above this level, the bill generally provides a deduction for up to 20% on business profits – reducing their effective marginal tax rate to no more than 29.6%.
- Allows businesses to immediately write off the full cost of new equipment
- Protects the ability of small businesses to write off interest on loans
- Preserves elements of the existing business tax system, including:
- Retaining the low-income housing tax credit
- Preserving the Research & Development Tax Credit
- Retaining the tax-preferred status of private-activity bonds that are used to finance infrastructure projects.
- Eliminates the Corporate Alternative Minimum Tax
- Modernizes the international tax system
- Makes it easier for American businesses to bring foreign earnings back to the US
For energy and economic growth, the Tax Cuts and Jobs Act:
- Establishes an “environmentally responsible” oil and gas program in the non-wilderness 1002 Area of the Arctic National Wildlife Refuge (ANWR).
- Provides a temporary increase in offshore revenue sharing for the Gulf Coast in 2020 and 2021, for these states to invest in priorities such as coastal restoration and hurricane protection.
The Barnes Dennig tax team is continuing to analyze the new law and the impacts on our clients. Stay tuned to the Barnes Dennig blog to learn more about future updates and changes that may impact you. Please contact a member of the Barnes Dennig tax team if you have questions.