Individual Taxation. Old. New. Complexity Meter (1 to 5) Tax Item Current Law New Law Comments

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1 Tax Item Current Law New Law Comments Complexity Meter (1 to 5) Old New Tax Brackets Seven Tax Brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% Modified Tax Brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37% Broad and significant tax relief across the board. Rates complicated by interplay of multiple factors. 4 4 SINGLE FILERS MARRIED FILING JOINTLY Current Law Final Plan Current Law Final Plan 10% $0 $9,525 10% $0 $9,525 10% $0 $19,050 10% $0 $19,050 15% $9,526 $38,700 12% $9,526 $38,700 15% $19,051 $77,400 12% $19,051 $77,400 25% $38,701 $93,700 22% $38,701 $82,500 25% $77,401 $156,150 22% $77,401 $165,000 28% $93, ,450 24% $82,501 $157,500 28% $156, ,950 24% $165,001 $315,000 33% $195,451 $424,950 32% $157,501 $200,000 33% $237,951 $424,950 32% $315,001 $400,000 35% $424,951 $426,700 35% $200,001 $500,000 35% $424,951 $480,050 35% $400,001 $600, % $426,701 or more 37% $500,001 or more 39.6% $480,051 or more 37% $600,001 or more

2 Adjusted Net Capital Gain Rates 0% for gains under $77,400 (MFJ) 15% for gains between $77,401 & $480,050 (MFJ) 20% for gains exceeding $480,050 (MFJ) The 3.8% NIIT. Tax applies to most capital gains Retains same rates and breakpoints The rates are intertwined with other income and the calculation is subject to complex rules % Net Investment Income Tax Applies to investment income and capital gains when adjusted income exceeds $250,000. No Changes. Very complex calculation. Some gains are excluded based on intricate rules. 5 5 Standard Deduction Single $6,500 Married $13,000 Single $12,000 Married $24,000 This simplifies reporting for filers with income of $75,000 and under. If you have more than one child you may actually be worse off because of the loss of personal exemptions. 3 2 Kiddie Tax Children under 19 (24 if a full time student,) pay tax at parent s tax rate for unearned income over $2,100 Net unearned income is subject to the trust tax rates. Top rate of 37% kicks in at $12,500. An unnecessary change that only adds complexity and frustration. 4 5 Medical Expenses Medical expenses are deductible in excess of 10% (7.5% if age 65,) of adjusted gross income The threshold of 7.5% now applies to all taxpayers AARP ruled the day on this one. 2 1

3 Mortgage Interest Interest on mortgages up to $1,000,000 for first and second residence were deductible. The limit has dropped to $750,000. Old loans are grandfathered. When this is combined with the limit on deductible property taxes, it will have a negative impact on the housing market. 2 2 Home Equity Loans You can deduct interest on a home equity loan of $100,000 regardless of what it was used for. No longer allowed. Kills home equity loan attractiveness. 3 0 Charitable Contributions Currently cash contributions are limited to 50% adjusted gross income. The charitable limitation is raised to 60% of adjusted gross income. Forecasts show that with fewer people itemizing, contributions will fall off. The new limit should help charities. 2 2 Personal Exemptions Personal exemptions are $4,150 each. Personal exemptions are eliminated - $0 like NADA A family of four would not have had taxable income until they earned $29,600. This will now drop to $24,000, for Top Rate The top tax rate of 39.6% kicks in at taxable income of $426,700 for single filers and $480,050 for married filers. The top tax rate of 37% kicks in at taxable income of $500,000 for single filers and $600,000 for married filers. A single taxpayer with income of $600,000 will save $4,854 and married filer will save $20,

4 Charitable deduction for athletic seating rights Up to 80% of payments to college athletic teams for preferred seating rights are deductible Congress has pitched a shut out on this. No deduction allowed for seating rights Could be a big hit to college football and basketball programs. Some good seats should free up. 2 2 State Income Tax and Property Taxes These are currently deductible in full, however they are not deductible against the Alternative Minimum Tax. The combined limit on state income taxes and property taxes is $10,000. This is a disaster for high tax states and a big problem for all 43 states that have income taxes. Many taxpayers may not see any federal tax relief. Florida could be in for a mass influx of businesses and individuals from the Northeast and California. 3 1 Deduction for Personal Casualty Losses Subject to certain limitation, casualty losses like fires, storms, theft or similar calamities were deductible. Only personal casualty losses incurred in a Federally declared disaster area are deductible. Another bonus for Florida as we get this dubious honor on a regular basis due to hurricanes. (Tongue and cheek) 4 2

5 Child Tax Credit A Child credit of $1,000 is available for kids under the age of 17. It phases out for single filers at $75,000 and joint filers at $110,000. Some of this is refundable. The child credit is increased to $2,000 and up to $1,400 is refundable. Refundable means it s a reverse income tax. You get a check even if you have no taxes. It phases out at $200,000 for single filers and $400,000 for married filers. This is the Rubio Robin Hood provision. He demanded this provision to be in the law or he would not support the bill. 4 4 Alimony If certain tests are met, payments to an ex-spouse can be deductible. Payments are includable as taxable income to the receiving spouse. After December 31, 2018 alimony is no longer deductible by the payer or taxable to the receiving spouse. Old agreements are grandfathered. At least one spouse will be happy with the change. 4 0 Miscellaneous Itemized Deduction Currently investment fees, certain legal fees, tax preparation fees, were deductible if it was in excess of 2% of adjusted gross income. All miscellaneous itemized deductions have been eliminated. Most middle and higher income taxpayers usually lost this deduction due to the 2% floor anyway. 3 0 Phase out of itemized deductions The back door loss of itemized deductions is 3% for each dollar over $314,000 for married filers. The so called Pease limits (named for the culprit who authorized it) have been eliminated. Good riddance to this cruel bait and switch game the Congress plagued on us. 4 0

6 Bicycle Community Expense Reimbursement Taxpayers could get a $20 per month bike commuting reimbursement tax free. This is no longer available. No freebies no matter how you commute to work. Another big blow to New York. First it was the Knicks, then the Jets, then the Giants, then no state income tax deduction and now this! 3 0 Alternative Minimum Tax for Individuals The dreaded AMT could apply to single individuals with AMT income over $55,400 and joint filers over $86,200. The new AMT exemptions have gone up to $70,300 for single filers and $109,400 for joint filers. The phase outs for these have also been relaxed. The dreaded AMT survived even though it should not have. It is a massive and unnecessary compliance burden. 5 5 Estate and Gift Taxes $5.6 million tax exemption that is adjusted for inflation annually. The estate and gift tax exemption is doubled in 2018 to $11.2 million and still adjusted for inflation annually. The increased exemption will ensure most Americans won t have to worry about the estate tax. 3 3

7 Business Taxation C-Corporation Tax Rates Multi-bracket income tax structure ranging from 15% to 35%. Single rate at 21% of corporate income. An almost incredible 40% decrease in the tax rate for corporations. This is game changer and will put us in the world spotlight 3 1 Corporate Alternative Minimum Tax 20% tax rate on alternative minimum taxable income. Eliminated. This will relieve some complexity for corporate filers. 5 0 Section 179 Immediate expensing (Sec 179) with $500k cap and $2 million phaseout. Raises Sec.179 expensing cap to $1 million and $2.5 million phaseout. Very few taxpayers will utilize Sec. 179 in the near term due to the increase in bonus depreciation. 3 3 Bonus Depreciation 50% bonus depreciation on new machinery and equipment. 100% bonus depreciation on new and used machinery and equipment. The increase in bonus depreciation is one of the biggest tax benefits to businesses in decades. 3 2 Net Interest Expense Capping Businesses can take a full deduction for interest paid. Net interest deduction is capped at 30% of EBITDA. The business interest limitation doesn't apply to a businesses that meets the $25 million gross receipts test. 1 4 Percentage-of- Completion Method For Long-Term Contracts An exception to the requirement to use the POC method was provided for companies with average gross receipts of $10 million or less The exception threshold has been increased to average gross receipts of $25 million or less. This is a significant win for small contractors. 3 3

8 Business Taxation Net Operating Loss NOLs can be carried back two years. NOLs can be carried forward 20 years. No usage limits in regards to taxable income. Eliminates two-year carryback. Indefinite carryforward. Usage limited to 80% of taxable income. A bad provision during recessionary times as NOL carrybacks helped save many businesses during the last recession. 4 4 Domestic Production Activities Deduction Taxpayers may currently take a deduction of 9% of the lesser of qualified production activities income or taxable income. Repealed as of 12/31/17. An offset to the lower corporate and business tax rates. 4 0 Research and Development Credit Companies that incur research and development (R&D) costs in the United States may take a credit on qualified costs. Preserved under the new law. The R&D credit is a Congressional favorite. 5 5 Amortization of R&D Expenditures May deduct expenditures in the current year, or elect to capitalize and amortize over a 5 or 10 year period. Must be capitalized and amortized over 5 years if research was performed within the U.S. or 15 years if research was performed outside the U.S. effective 1/1/2022. This reduces the benefit of the R&D credit somewhat as it stretches out the deduction. 0 3 Employer Paid Meal Expense Deduction Generally deduct 50 percent of the food and beverage expenses associated with operating their trade or business (e.g., meals consumed by employees on work travel). Expanded the 50% limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility. Corporate cafeterias will take a hit. 3 3

9 Business Taxation Entertainment Expense Deductions Can currently deduct 50% of expenses for entertainment, amusement, or recreation that is directly related to the active conduct of the taxpayer s trade or business. Repeals the exception to the deduction disallowance for entertainment, amusement, or recreation that is directly related to the active conduct of the taxpayer s trade or business. This is a little known provision that is horrible for all businesses. This could have a adverse impact on restaurants, and everything from the Opera to the NFL. 4 0 Work Opportunity Tax Credit Credit on 25 or 40 percent of a qualified employee s firstyear salary. This credit was not addressed in the new law A little used credit that is very popular. 4 4 Small Business Eligibility for Cash Accounting Eligibility threshold for utilizing the cash accounting method is $10 million in income or less. Eligibility threshold increases to $25 million in income. This is a significant win for small businesses. 3 3 International Revenue Current laws enforce a worldwide taxation system. Enacts a territorial tax system with base erosion rules for passive income, as well as anti-abuse rules for U.S. subsidiaries of foreign-based entities. Base erosion anti-abuse tax rate of 5% of modified taxable income over an amount equal to regular tax liability for year one. After year one, rate increases to 10% for years through After 2025, the rate increases to 12.5% with increased rates for banks. Territorial taxation puts us on par with the rest of the world. 5 4

10 Business Taxation Deferred Foreign Income/Deemed Repatriation Not addressed in current tax law. Deemed repatriation of currently deferred foreign income: 15.5% repatriation tax rate for liquid assets. 8% repatriation tax rate for illiquid assets. The Congress is hoping this brings billions of dollars of cash back into the United States. 0 5 Employee Compensation Not addressed in current tax law. Enacts new credit for compensation paid to employees while on leave. A trump family favorite. 0 3 Pass-through income is generally subject to individual income tax rates and brackets Enacts a 20% deduction of qualified business income for certain pass-through businesses limited to the greater of: 50% of wage income or 25% of wage income plus 2.5% of the cost of tangible depreciable property. Incredibly complicated. You will need your CPA to help decipher this provision. Taxation of Passthrough Entities Specified Service Business are not eligible for the deduction unless below the following thresholds: Joint filers with income below $315,000 and other filers with income below $157,500 can claim the deduction fully on income. Specified Service Businesses include: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services. 0 5