Tax Cuts and Jobs Act of 2017


Individual Tax Provisions

New Tax Rates/Brackets (Effective 2018-2025)
• Seven brackets for individuals:
–  10%
–  12%
–  22%
–  24%
–  32%
–  35%
–  37%

• Personal Exemption Deduction is eliminated (Effective 2018-2025)
• Standard Deduction increases to $24,000 for Married Filing Joint, $18,000 for Head of Household, $12,000 for all other taxpayers (Effective 2018-2025 with future inflation adjustments)
• Itemized deduction for state and local taxes limited to $10,000 (Effective 2018-2025)
• Child Tax Credit Increased
• From $1,000 to $2,000)
• Eliminated Deductions (Individuals)
• Charitable Contribution Deduction for College Athletic Seating Rights
• No charitable deduction to a college or institution for higher education will be allowed to be exchanged for the right to purchase tickets/seating at an athletic event.
• Casualty and Theft Loss Deduction
• Personal casualty losses incurred in a federally declared disaster are exempt from this elimination.
• Miscellaneous Itemized Deductions (tax preparation, investment advisory fees, etc.)
• Alimony Deduction by Payor and Income Inclusion by Payee
• Alimony and separate maintenance payments are no longer deductible for the payor spouse and not included in the income of the payee spouse.
• Moving Expense and Reimbursements
• Active members of the Armed forces moving due to military order or change of station are exempt from this elimination.
• Education Incentives
• Taxpayers who pay tuition to a college or university may be eligible for a Lifetime Learning Credit, a Hope Credit, or an American Opportunity Tax Credit, depending on the circumstances.
• Employers may pay up to $5,250 on behalf of an employee to obtain work-related education without the payment being included in the taxable income of the employee.
• PhD candidates and dependents of college or university employees may receive tax free tuition waivers
• A deduction for student loan interest of up to $2,500 is available
• 529 accounts can be used to pay for private elementary and secondary school expenses
• Tax free treatment of 529 withdrawals for elementary and secondary schooling is limited to $10,000 per student per year.
• Alternative Minimum Tax (AMT)
• Increased exemption amounts
• $109,400 for married couples for tax years 2018-2025 compared to $84,500 in tax years prior.
• Less taxpayers will fall within AMT
• AMT credit is refundable and can offset regular tax liability equal to 50% of the excess of the minimum tax credit for the year over the amount of the credit allowable for the year against regular tax liability for 2018-2021
• Tax years beginning in 2021 50% turns to 100%
• Exclusion on Sale of Primary Residence
• Taxpayer may exclude up to $250,000 of gains ($500,000 married filing jointly)
• Must have owned/rented property and used it as the primary resident for two of the previous five years
• Affordable Care Act
• Individual “shared responsibility payment” is reduced from $695 to $0.
• Estate and Gift Tax Retained with Increased Exemption Amount
• Doubled the base estate and gift tax exemption (from $5 million to $10 million)

Corporation, Pass-through entities and unincorporated businesses Tax Provisions

• C Corporation Tax Rates
• Lowered tax rate to a flat 21%
• Applies to personal service corporations as well
• Dividends Received Deduction
• If a corporation owns 20% or more of another, a 65% dividend received deduction is allowed (no longer 80%)
• Less than 20%, a 50% deduction is allowed (no longer 70%)
• Section 179 (Expensing and Depreciating Property)
• Maximum deduction is now $1 million
• Section 179 property includes some personal property used to improve non-residential property (roofs, security system, HVAC, etc.)
• Immediate Expensing of Qualifying Business Assets
• 100% first year deduction for qualified property bought and used after 9/27/17 and before 1/1/23
• 80% for 2023
• 60% for 2024
• 40% for 2025
• 20% for 2026
• Shortened Recovery Period for Real Property
• Qualified leasehold improvement, restaurant, and retail improvement property are now treated the same
• General 15 year recovery period for all qualified improvement property
• Recovery period for residential rental property is now 30 years rather than 40.
• Interest Expenses
• All businesses will have a net interest expense disallowance.
• Net interest expense over 30% of the company adjusted taxable income will be disallowed.
• Taxpayers with an average annual gross receipts for the past three years of $25 million or less are exempt
• Net Operating Loss (NOL)
• Deduction is limited to 80% of taxable income
• Can be carried forward indefinitely
• No more two year carry back rule
• Like-kind Exchanges (Section 1031)
• Now only applies to real property that is not held primarily for sale
• Research and Experimental Expenses
• Required specific R&E expenses to be capitalized and amortized ratably over five years (includes cost for software development)
• Deductions for Fringe Benefits
• Deductions for entertainment expenses are completely disallowed
• Business meals deduction allowed, subject to the 50% limit on deductibility now include those provided in an in-house cafeteria or on employer’s premises
• No deduction for employee transportation fringe benefits
• No deduction for transportation expenses that are equal to communizing for employees
• No employer deduction for meal expenses provided on business premises
• New Credit for Employer paid Family and Medical Leave
• Businesses can claim a general business credit equal to 12.5% of the wages paid to qualifying employees during any period when that employee is on family or medical leave if the rate of payment is 50% of the wages normally paid.
• Credit increased by .25 percentage points for each point that the rate of payment is over 50%.
• All qualifying full time employees have to be given at least two weeks of annual paid family and medical leave.
• Expansion of Cash Method Accounting
• The cash method can be used by tax payers that pass the $25 million gross receipts test (regardless of whether the purchase, production, or sale of products is an income generating factor).
• Not required to account for inventories
• Treat inventories as nonincidental materials or conform to their financial accounting treatment of inventories
• Eliminated Deductions (Business)
• Domestic Manufacturing Deduction (Section 199) repealed for tax years after 12/31/17

New Deductions
• Business Income from Pass-through Entities and Sole Proprietorships
• An individual may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship but it cannot be included in computing Adjusted Gross Income.
• Can be used as a deduction reducing taxable income
• Deduction cannot exceed 50% of your share of the W-2 wages paid by the business.
• Can be computed at 25% of your share of the W-2 wages plus 2.5% of the original purchase price of property used in the production of income.
• W-2 limitations do not apply if you earn less than $157,500 (single) or $315,000 (married filing jointly).
• Some personal service businesses are not eligible for the deduction
• Services in the fields of health, law, consulting, athletics, financial services, brokerage, investment, investment management trading, security, etc. are not eligible
Limits Imposed/Adjusted/Increased/Eliminated
   • Standard Deduction (Increased)
• Married Joint Return- $24,000
• Head of Household- $18,000
• All Other Taxpayers- $12,000
    • State and Local Tax Deductions
• Taxpayer’s itemized deduction for state and local taxes is limited to $10,000 of the aggregate of state and local property taxes and state and local income, war profits, and excess profits taxes paid or accrued in the tax year. ***an individual may not claim an itemized deduction in 2017 on a prepayment of income tax for a future tax year in order to avoid the dollar limitation applicable for tax years beginning after 2017.
    • Mortgage and Home Equity Indebtedness Interest Deductions
• Deduction for interest on home equity indebtedness is eliminated
• Deductions on mortgage interest is limited to underlying indebtedness of up to $750,000.
    • Charitable Contribution Deduction Limitation (Increased)
• Cash contributions to public charities and some private foundations has increased from 50% to 60%.
• Contributions over 60% can be carried forward and deducted for up to five years based on the later year’s ceiling.
    • “Pease” Limitation on Itemized Deductions (Eliminated)
• High-income taxpayers who itemize their deductions no longer have a limitation
    • Luxury Automobile Depreciation Limit (Increased
• Max depreciation increased to $10,000 for the placed-in-service year
• Max depreciation $16,000 for second year
• Max depreciation $9,600 for the third year
• Max depreciation $5,760 for the fourth year and on


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