phone: (781) 233-2003 | fax: (781) 233-2484 info@taxshopsaugus.com

Tax Reform

 

 What You Need to Know about the Tax Reform Act

This is the first significant tax reform since 1986. Every taxpayer will be affected by these changes in one way or another. It’s important to learn about these changes and how they affect you. These changes do NOT affect your 2017 taxes, except where noted. Talk to your trusted financial professional to learn more.

The Tax Reform Act did not change the following provisions: 

  • Adoption Tax Credit
  • Child and Dependent Care Credit
  • Home Sales Exclusion
  • Student Loan Interest Deductions
  • Earned Income Credit
  • Educator Expense Deduction
  • Net Investment Income Tax

Note: The purpose of this guide is to give you a general overview of the Tax Cuts and Jobs Act. It outlines the major changes of this new law. This guide is not intended to replace the advice of a financial professional.

SubjectOld LawNew Law
Miscellaneous Itemized DeductionsTax preparation fees and unreimbursed business expenses that exceed 2% of a taxpayer's adjusted gross income may be deducted.Not deductible.
AlimonyAlimony is deductible by the payer spouse and taxable to the recipient spouse.No change for 2018. Deduction and taxability of alimony is eliminated beginning in 2019.
Moving ExpensesTaxpayers may deduct their costs if they move to start a new job or to work at the same job in a new location at least 50 miles away.Eliminated for 2018-2025, except for active-duty members of the military.
Charitable DonationsTaxpayers may deduct charitable contributions of money or property made to qualified organizations (if they itemize) up to 50% of their adjusted gross income, with 20% and 30% limitations in some cases.Limitation for contributions of money has been increased to 60% of adjusted gross income.
Medical ExpensesTaxpayers under age 65 may deduct unreimbursed qualified medical expenses in excess of 10% of their adjusted gross income (7.5% if 65 or older).Medical expense deduction will remain in place, with deduction for expenses in excess of 7.5% for all taxpayers for 2017 and 2018. After 2018, 10% threshold is restored for taxpayers under 65.
Casualty Loss DeductionGenerally any casualty loss in excess of 10% of adjusted gross income may be deducted, to the extent that they exceed 10%. Casualty loss deductions have been eliminated, except for losses incurred in federally declared disaster areas.
Personal Exemption$4,050 deduction for taxpayer, spouse, and each of their dependents.Eliminated.
Standard Deduction$6,350 for single taxpayers and married couples filing separately; $12,700 for married couples filing jointly; $9,350 for heads of households.$12,000 for singles; $24,000 for married couples; $18,000 for heads of household.
Mortgage Interest DeductionHomeowners can deduct interest on mortgages up to $1 million and home equity interest up to $100,000.$750,000 threshold on new mortgages taken after 12/14/17. Mortgages taken prior are still subject to the $1 million limit. Beginning in 2026, all mortgages subject to $1 million limit. Home Equity Debt interest deduction eliminated until 2026.
State and Local Property TaxesTaxpayers who itemize can deduct state and local property and real estate taxes, and either state and local income or sales taxes.State and local sales, income and property taxes are now capped at $10,000.
Tax BracketsSeven brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%Seven brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Other
Estate Tax40% tax on assets over $5.49 million per person, or nearly $11 million per married couple.Doubles the estate tax exemption to nearly $11 million per taxpayer.
EducationTwo different education savings plans and seven other education incentives.No changes to existing education credits. 529 savings plan funds can now be used for elementary and secondary school expenses, up to $10,000/year, per student.
Kiddie TaxDependent children with unearned income generally exceeding $2,100 are taxed at their parents' marginal tax bracket rate.Unearned income over $2,100 will now be taxed based on rates that are applicable to estates and trusts (less favorable).
Child Tax Credit$1,000 for each qualifying child under age 17.$2,000 per child, refundable up to $1,400. A $500 credit for other qualifying dependents has been added, temporarily.
Business
Repatriation TaxProfits earned abroad are not subject to tax.15.5% tax on post-1986 accumulated foreign earnings held in case or cash equivalents and 8% tax on post-1986 accumulated foreign earnings held in liquid assets.
Territorial SystemAll income from whatever sources derived is taxable on worldwide basis. Under tax reform, business income earned overseas is generally excluded from U.S income tax (i.e., territoriality)100% deduction for foreign-source portion of dividends received from specified of 10%-owned foreign corporations.
Entertainment Expenses50% of entertainment deductible as a business expense, including amusement, recreation, and club membership dues. Not deductible.
Luxury Auto RulesDepreciation for business automobiles limited to: $3,160, $5,100, $3,050 and $1,875 for years 1, 2, 3 and thereafter, respectivelyAllowable limits increased to:
$10,000, $16,000, $9,600 and $5,760 for years 1, 2, 3 and thereafter, respectively.
Corporate Tax RateVaries from 15% to 35% depending on the amount of corporate income subject to tax for the year. Flat rate of 35% for income over $18,333,333.Maximum corporate income tax rate is reduced to 21% beginning in 2018.
"Pass-Through" Businesses"Pass-through" or "flow-through" business income from partnerships, LLCs, Subchapter-S corporations, and sole proprietorships is taxed as ordinary personal income, capped at 39.6%.Pass-through business owners and sole proprietors may be eligible to deduct up to 20% of that business-related income. No deduction exists for certain service businesses when taxable income exceeds $207,500 for individuals, $415,000 for married couples filing jointly.

Questions? We’ll be happy to answer them for you!
Call us at (781) 233-2003