Search
Certified Public Accountants
& Business Consultants

Focus on Taxation: Tax Reform Update – Businesses & Individuals

Contact Our Team

An agreement has been reached on a tax reform bill that is expected to go before the House and Senate for a final vote this week. The President is anticipating signing it into law before Christmas. The following is a summary of the key changes proposed.
December 19, 2017

An agreement has been reached on a tax reform bill that is expected to go before the House and Senate for a final vote this week. The President is anticipating signing it into law before Christmas. The following is a summary of the key changes proposed:


Business Tax Changes

  • Reduced C corporation tax rate to 21%

  • Created 20% deduction for income from pass-through businesses (S corporation, partnership and sole proprietorship) subject to certain limitations with the deduction not allowable for most service businesses

  • Increased bonus depreciation to 100% of the cost of qualified property placed in service after 9/27/17 and before 1/1/23

  • Eliminated the domestic production activities deduction (Section 199)

  • Eliminated like-kind exchanges for personal property (still allowed for real property)

  • Eliminated the corporate alternative minimum tax

  • Limited net operating loss deductions of C corporations to 80% of taxable income for losses arising in tax years beginning after 2017, eliminated net operating loss carrybacks in future years, and extended net operating loss carryforwards indefinitely for losses arising in tax years beginning after 2017

  • Limited interest deductions for certain large businesses to business interest income plus 30% of earnings before interest and tax. For tax years beginning after December 31, 2017 and before January 1, 2022, depreciation and amortization are also added back to earnings before interest and tax.

  • Transformed our existing taxation of international profits from a worldwide to a territorial system of taxation

  • Exempted from tax 100% of dividends from certain foreign subsidiaries

  • Treats certain foreign earnings that have accumulated overseas under the current worldwide system as repatriated and subjects to a tax of 15.5% for cash and equivalents and 8% for illiquid assets

 

Individual Tax Changes

  • Retained seven tax brackets, but most at lower rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%, but with different income thresholds including lower thresholds for single taxpayers.
  • Raised standard deduction to:
    • Married filing jointly and surviving spouse - $24,000
    • Head of household - $18,000
    • Single and married filing separately - $12,000
  • Eliminated personal exemptions
  • Eliminated individual mandate of the Affordable Care Act that provides tax penalties for individuals who do not obtain health insurance coverage (after 2018)
  • Increased the child tax credit to $2,000
  • Increased alternative minimum tax exemption amounts and phase-out thresholds as follows:
    • Married filing joint - $109,400 exemption, $1,000,000 phase out
    • All other filers - $70,300 exemption, $500,000 phase out
  • Capped state and local tax deduction (income and property tax combined) at $10,000
  • Limited mortgage interest deduction to interest on acquisition indebtedness of $750,000 and eliminated the deduction for interest on home equity loans
  • Eliminated miscellaneous itemized deductions currently subject to 2% of AGI
  • Modifies the education savings plan rules to allow distributions of up to $10,000 annually for tuition expenses incurred in connection with enrollment or attendance of a student at a public, private or religious elementary or secondary school
  • Eliminated alimony deduction and related income inclusion for divorces or separation instruments after 12/31/2018
  • Doubled exemptions for estate, generation-skipping and gift taxes

Many of the above provisions are not permanent and have expiration dates in the future (including the reduced individual tax rates). For questions or further discussion as it pertains to your business or personal tax situation, please contact one of RubinBrown’s Tax Services Group professionals.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

All Tax Consulting News Tax Consulting Services

For more information, please contact: