TAX CUTS AND JOBS ACT

Transcription

1 TAX CUTS AND JOBS ACT Businesses Corporate tax rate will now be a flat 21% beginning January 1, Corporate alternative minimum tax has been repealed. Effective for tax years beginning after December 31, 2017, taxpayers with average gross receipts of less than $25 million for the prior three taxable years: can now use the cash method of accounting. This requires a change in method of accounting and a Section 481 adjustment. are now exempt from the UNICAP rules. This requires a change in method of accounting and a Section 481 adjustment. are now exempt from the requirement to account for inventories under Section 471. Such taxpayers may either treat inventories as materials and supplies that are not incidental or conform to the taxpayer s financial accounting treatment. This requires a change in method of accounting and a Section 481 adjustment. are exempt from the requirement to use the percentage of completion accounting method for long term construction contracts to be completed within two years, regardless of entity structure. Pass through Income Deduction For tax years after 2017 and before 2026, individuals will be allowed to deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorships, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. If a taxpayer s income is over $157,500 (single) or $315,000 (married filing joint), then the deduction is the lesser of 20% of the qualified business income or the greater of: 50% of W 2 wages of the business or 25% percent of W 2 wages of the business plus 2.5 percent of the unadjusted basis of all qualified property. This deduction is not available for certain specified service trade or business unless the taxpayer s taxable income is less than $207,500 (single) or $415,000 (married filing joint). Page 1 of 6

2 Pass through Income Deduction (continued) Health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services do not qualify for this deduction. The deduction is also not available for a trade or businesses whose principal asset is the reputation or skill of one or more of its employees or owners. Note that architecture and engineering are not included in the list above. Bonus Depreciation Beginning September 28, 2017, businesses can deduct 100% of the cost of eligible property in the year it is placed in service through The bill also removes the requirement that bonus depreciation is only available for new property. Some of the eligible property that qualifies for bonus depreciation includes MACRS property with a recovery period of 20 years or less, off the shelf computer software or qualified improvement property. Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. Qualified improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building. Section 179 Expensing The Act increases the amount that a taxpayer may expense under Section 179 to $1,000,000. The Act expands the definition of qualified real property eligible for Section 179 expensing to include any of the following improvements to nonresidential real property: roofs, heating, ventilation, and air conditioning property, fire protection and alarm systems, and security systems. Net Operating Losses The deduction for net operating losses will be limited to 80% of taxable income and the net operating losses can now be carried forward indefinitely. The two year carryback and special NOL carryback provisions are now repealed with the exception of farming businesses. Excess business losses of a taxpayer other than a C corporation are not allowed for the taxable year, but rather are carried forward and treated as creating (or adding to an existing) a net operating loss carryforward in subsequent taxable years. An excess business loss is the excess of aggregate trade or business deductions over the sum of aggregate trade or business gross income plus a threshold amount. The threshold is $500,000 for joint files and $250,000 for other taxpayers. Page 2 of 6

3 Like Kind Exchanges Like kind exchanges are now limited to exchanges of real property that are not primarily held for sale. This generally applies to exchanges completed after December 31, Domestic Production Activities Deduction This deduction is no longer allowed for Entertainment Expenses Entertainment expenses and membership dues are no longer deductible. Meals associated with operating a trade or business are still deductible at 50%. Qualified Transportation Fringe Benefits The bill disallows a deduction for expenses associated with providing any qualified transportation fringe to employees of the taxpayer, and except as necessary for ensuring the safety of an employee, any expense incurred for providing transportation (or a payment or reimbursement) for commuting between the employee s residence and place of employment. Employer credit for Paid Family or Medical Leave The bill allows eligible employers to claim a credit equal to 12.5% of the amount of wages paid to a qualifying employee during any period in which the employee is on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to the employee. This credit is only available in 2018 and Standard Deduction Individuals (New tax rates attached) The standard deduction will be $24,000 for married filing jointly taxpayers, $18,000 for heads of households, and $12,000 for all other individuals. Personal Exemptions (dependent deductions) There are no longer any exemption deductions. Page 3 of 6

4 Child Tax Credit The child tax credit will increase to $2,000 per qualifying child. There is also a $500 credit for qualifying dependents who are not qualifying children. These credits begin to phase out once adjusted gross income hits $400,000 for married filing joint taxpayers and $200,000 for other taxpayers. Education Provisions Section 529 plans can now be used to fund elementary or secondary schools up to $10,000. This limitation applies on a per student basis. Itemized Deductions The overall limitation on itemized deductions will no longer apply. The home mortgage interest deduction limits acquisition indebtedness to $750,000 (currently $1,000,000). A deduction for home equity loan interest is no longer allowed. State and local taxes are only deductible up to $10,000 in state and local income or property taxes. Casualty losses are only deductible if the loss is attributable to a presidentially declared disaster. Charitable contributions deductions are no longer allowable for college athletic event seating rights. Miscellaneous itemized deductions subject to the 2% floor will no longer be deductible. Medical expense are deductible to the extent they exceed 7.5% of adjusted gross income for 2017 and Alimony For divorce or separation agreements executed after December 31, 2018, alimony and separate maintenance payments are no longer deductible by the payor spouse. The payments are also not included in income by the payee spouse. Moving Expense Reimbursements These reimbursements will no longer be excluded from gross income and wages unless the person is a member of the armed forces on active duty who moves pursuant to a military order. Page 4 of 6

5 Kiddie Tax Taxable income of a child attributable to earned income is taxed under the rates for single individuals and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. All income over $12,501 in a trust is taxed at 37%. Estate, Gift, and Generation skipping Transfer Taxes The bill doubles the estate and gift tax exemption for estates of decedents made after December 31, 2017 and before January 1, 2016 to $10,000,000. Louisiana A tax credit is allowed for donations made on or after January 1, 2018, to a Louisiana school tuition organization that provides scholarships to qualified students to attend a Louisiana nonpublic elementary or secondary school. The Louisiana credit is 95% of the amount donated. The IRS should be providing guidance soon as to whether this donation will also be allowed as a federal itemized deduction. Single Individuals Not over $9,525 Over $9,525 but not over $38,700 $ plus 12% of the excess over $9,525 Over $38,700 but not over $82,500 $4, plus 22% of the excess over $38,700 Over $82,500 but not over $157,500 $14, plus 24% of the excess over $82,500 Over $157,500 but not over $200,000 $32, plus 32% of the excess over $157,500 Over $200,000 but not over $500,000 $45, plus 35% of the excess over $200,00 Over $500,000 $150, plus 37% of the excess over $500,000 Heads of Households Not over $13,600 Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600 Over $51,800 but not over $82,500 $5,944 plus 22% of the excess over $51,800 Over $82,500 but not over $157,500 $12,698 plus 24% of the excess over $82,500 Over $157,500 but not over $200,000 $30,698 plus 32% of the excess over $157,500 Over $200,000 but not over $500,000 $44,298 plus 35% of the excess over $200,00 Over $500,000 $149,298 plus 37% of the excess over $500,000 Page 5 of 6

6 Married individuals filing joint returns and surviving spouses Not over $19,050 Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050 Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400 Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000 Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000 Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,00 Over $600,000 $161,379 plus 37% of the excess over $600,000 Married individuals filing separate returns Not over $9,525 Over $9,525 but not over $38,700 $ plus 12% of the excess over $9,525 Over $38,700 but not over $82,500 $4, plus 22% of the excess over $38,700 Over $82,500 but not over $157,500 $14, plus 24% of the excess over $82,500 Over $157,500 but not over $200,000 $32, plus 32% of the excess over $157,500 Over $200,000 but not over $300,000 $45, plus 35% of the excess over $200,00 Over $300,000 $80, plus 37% of the excess over $300,000 Estates and Trusts Not over $2,550 Over $2,550 but not over $9,150 $255 plus 24% of the excess over $2,550 Over $9,150 but not over $12,500 $1,839 plus 35% of the excess over $9,150 Over $12,500 $3, plus 37% of the excess over $12,500 Page 6 of 6