Tax Changes In The Tax Cuts And Jobs Act

MITCHELL MILLER - Estate Planning Attorney In Los Angeles, CA
Here are some of the most significant changes in taxation for 2018 – 2025:

Individual Tax Changes

1. Individual tax rates have been reduced – maximum rate reduced to 37%

2. Miscellaneous itemized deductions – not deductible from 2018-2025!

a. Applies to total of all miscellaneous deductions

b. Includes home office, auto, and similar deductions

3. State and local tax deduction – $10,000 limitation

Some states have enacted (or are preparing to enact) laws that permit taxpayers to make a charitable contribution in lieu of taxes, hoping to get around the $10,000 limit on deducting state and local taxes.

In the case of individuals, the IRS has announced that it will issue regulations which disallow any such payments as charitable contributions. The $10,000 limit will certainly apply to such payments.

The IRS has issued rules that allow business entities that make such payments to deduct them as ordinary and necessary business expenses, but not as charitable contributions. The rule doesn’t spell out what happens to any remaining balance of tax payments made that exceed $10,000, but it appears likely that any such will not be deductible.

4. No deduction for home equity interest, unless used for home improvements

5. Standard deduction raised to $24,000 (married filing jointly); $18,000 (head of household); $12,000 (single/married filing separately)

6. Alternative minimum tax exemption raised to $109,400 (married filing jointly); $70,300 (single/head of household); $54,700 (married filing separately)

7. Expanded childcare and dependent credit – $2,000 per child; $500 per non-child dependent; phased out at $400,000 (married filing jointly); $200,000 (all others)

Business Tax Changes

8. Business taxes for most entities have been reduced substantially.

a. C corporation tax rate lowered to 21%

b. Pass-through entities (S corporations, LLCs, partnerships, and sole proprietorships) receive a deduction for Qualified Business Income (QBI) to make their taxes comparable to C corporations

i. Does not apply to service businesses in fields of health, law, accounting, or consulting (among others)

ii. Exception – taxable income less than $315,000 for joint returns ($157,500 for all others); there is gradually decreasing benefit up to $415,000 ($207,500 for all others)

9. Full expensing of business assets

a. Up to $1 million

b. Real property improvements now eligible, including tangible personal property used in residential or hotel buildings

10. Meals, entertainment, and transportation deductions

a. Not deductible from 2018-2025!

b. There are some exceptions:

i. Business meals furnished employees on employer’s premises – 50%

ii. Business meals during travel for work away from home – 50%

iii. Expenses for business meetings of employees, stockholders, agents, or directors – 50%

iv. Accountable reimbursed expenses – 100%

v. Bicycle commuting expenses – 100%

vi. Previous rules still apply: ordinary and necessary, not lavish or extravagant, in connection with business discussion, etc.

11. Sec.1031 tax-free exchanges now limited to real estate

12. Qualified Opportunity Zones (New Markets Tax Credit)

a. Census tracts where poverty rate is 20% or higher; or median family income is not greater than 80% of statewide or metropolitan area median family income

b. Credit is 5% of “Qualified Equity Investment” for first 3 years; 6% for next 3 years

c. Limitation on total USA-wide credit allowed

i. $3.5 billion

ii. Available in 2018 and 2019 only

d. Rollover of gain on sale of Qualified Equity Investment

i. If proceeds reinvested in unrelated Qualified Opportunity Fund within 180 days

ii. Gain recognized on sale or December 31, 2026, whichever is earlier

e. Recapture of gain if Qualified Equity Investment disposed of within 7 years of original issue

13. Net operating loss deductions reduced

a. Limited to 80% of taxable income

b. No carryback, unlimited carryforward

The above is general information and does not constitute tax advice. Please consult your tax professional for advice about tax saving possibilities that might apply to you.

Have a question about your estate? Contact Mitchell Miller.

 

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