Tax brackets are 7 in number, and the rates for most taxpayers are reduced. Lowest is 10% highest is 37%.
The top marginal rate for individual taxpayers was reduced to 37%, but the threshold of income to which the rate applies was dropped from $1M to $600,000 for taxpayers that are Married Filing a Joint return (MFJ). These rates do not apply to tax years beginning after December 31, 2025.
The pass-through income deduction was reduced from 23% to 20% and retains the limitations on specified service businesses, with a reduction on the levels of income that could qualify to $315,000 MFJ and $157,500 for an individual taxpayer filing Single. The Explanatory Statement issued with the bill provides, “the conferees expect that the reduced threshold amount will serve to deter high-income taxpayers from attempting to convert wages or other compensation for personal services to income eligible for the 20-percent deduction”. THIS WILL NOT AFFECT THE SELF-EMPLOYMENT TAX, BUT WILL CLEARLY IMPACT YOUR BOTTOM LINE. THIS IS EFFECTIVE STARTING IN 2018.
However, S Corporation owners will now face reductions in this deduction if they were not paid reasonable compensation.
The corporate tax rate is reduced from 35% to 21% with no special rate for personal service companies and no expiration of these provisions. In addition, the corporate alternative minimum tax (AMT) is repealed.
The bill retains the full ability to expense qualified property acquisitions (not including structures) of new and used property placed in service after September 27, 2017 and before January 1, 2023, with a phase down by 20% per year for property placed in service after December 31, 2022 and before January 1, 2026.
All entertainment related expenses will be fully disallowed for amounts paid or incurred after December 31, 2017.
The 50% deduction for food and beverages is maintained, and expanded to include expenses of the employer associated with providing meals to employees through an eating facility that meets the requirements for minimum fringes and for the convenience of the employer. After December 31, 2025, these amounts will no longer be deductible. Business owners will now have to ensure that caterers and restaurants where parties are held qualify.
Individual Deductions and Credits
Individuals receive a larger standard deduction of $12,000 (single) and $24,000 (join) and $18,500 for head of household. These are doubled for elderly. Thus, a person over the age of 65 can receive an exemption of $24,000 (single) and $48,000 for a couple. However, you lose the exemptions of $4,050 per person.
Child Tax Credit will be enlarged to $2,000 (with maximum of $1,400 for more than one child). Children who qualify are 17 and under. Qualifying income levels are raised from $75,000 for single taxpayers to $200,000 and $110,000 for married to $400,000 for married. This credit is refundable. There is a non-refundable credit of $500 for non-child dependents. To qualify for the full credit the child must have a social security number (not an ITIN).
Fewer will need to itemize, and there are some huge changes in deductions.
No more casualty or theft losses unless you are in a disaster area declared so by the President.
No more Miscellaneous itemized deductions. That means payment to your tax preparer, or for investment guidance or for that safe deposit box are not longer going to be deductible.
Reduced state and local tax deductions to a cap of $10,000 combined. Individual taxpayers will be allowed to deduct state income, property and sales taxes, up to an aggregate cap of $10,000 ($5,000 for a married taxpayer filing a separate return). This cap expires for tax years beginning after December 31, 2025. The bill also makes clear that the prepayment of any state income taxes related to a year beginning after December 31, 2017 will not be deductible in 2017.
The deduction for mortgage interest will be limited to mortgages not exceeding $750,000 for new mortgages incurred after December 31, 2017. For mortgages incurred prior to that date, the limitation is $1M ($500,000 in the case of married taxpayers filing separately). The interest expense deduction for home equity loans has been suspended for tax years beginning after December 31, 2017. The suspension will lift for tax years beginning after December 31, 2025.
Alimony will not longer be deductible nor will it be income to the spouse receiving it.
The individual exclusions and phase-out thresholds for Alternative Minimum Tax are increased, but neither is fully eliminated in the final bill.
Useful lives for calculation have been compressed.
Greater ability to write off entire purchase at time of purchase.
Estate and Gift Taxes
The estate and gift tax exemption is doubled to $10MM (indexed for inflation) for estates and gifts made after December 31, 2017 and before January 1, 2026. This allows $20mm per couple.
POSSIBLE 2017 STRATEGIES:
1. Defer income to 2018.
2. Pay Tax preparer early for 2018 tax return. (Don’t think you should try for years further out).
3. Pay 2018 real estate taxes before 2018.
4. Pay your state estimated taxes before 1/1/18.
5. Buy a new home.