Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.
While many provisions of the Tax Cuts and Jobs Act (TCJA) will save businesses tax, the new law also reduces or eliminates some tax breaks for businesses. One break it eliminates is the Section 199 deduction, commonly referred to as the “manufacturers’ deduction.” When it’s available, this potentially valuable tax break can be claimed by many types of businesses beyond just manufacturing companies. Under the TCJA, 2017 is the last tax year noncorporate taxpayers can take the deduction (2018 for C corporation taxpayers).
The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to?
But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.
Employers and employees: Withholding tables reflecting Tax Cuts and Jobs Act (TCJA) changes are now available, and employees could see paycheck changes by February. The IRS has issued new income tax withholding tables for 2018 and advised employers to begin using them as soon as possible, but no later than Feb. 15. Find the IRS’s information release at http://bit.ly/2D2ihJn and the percentage method tables themselves in IRS Notice 1036 at http://bit.ly/1Ne91he Answers to frequently asked questions about using the new tables can be found at http://bit.ly/2D5iWJm
Although the drop of the corporate tax rate from a top rate of 35% to a flat rate of 21% may be one of the most talked about provisions of the Tax Cuts and Jobs Act (TCJA), C corporations aren’t the only type of entity significantly benefiting from the new law. Owners of noncorporate “pass-through” entities may see some major — albeit temporary — relief in the form of a new deduction for a portion of qualified business income (QBI).
The recently passed tax reform bill, commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), is the most expansive federal tax legislation since 1986. It includes a multitude of provisions that will have a major impact on businesses.
Here’s a look at some of the most significant changes. They generally apply to tax years beginning after December 31, 2017, except where noted.
On December 20, Congress completed passage of the largest federal tax reform law in more than 30 years. Commonly called the “Tax Cuts and Jobs Act” (TCJA), the new law means substantial changes for individual taxpayers.
The following is a brief overview of some of the most significant provisions. Except where noted, these changes are effective for tax years beginning after December 31, 2017, and before January 1, 2026.
Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately)
Elimination of personal exemptions
Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018, and permanent
Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers)
Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
Elimination of the deduction for interest on home equity debt
Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters)
Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
Elimination of the AGI-based reduction of certain itemized deductions
Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year — permanent
AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers
Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing)
Be aware that additional rules and limits apply. Also, there are many more changes in the TCJA that will impact individuals. If you have questions or would like to discuss how you might be affected, please contact us.
Alimony will lose its tax effect for both spouses under the new tax law. Currently, taxpayers who pay alimony may be able to deduct the payments from their taxable income, and recipients must claim alimony as taxable income. The Tax Cuts and Jobs Act will revise the rules. For divorce or separation agreements executed after Dec. 31, 2018 (or executed before but modified after this date), alimony payments are neither deductible by the payer nor includible in income by the recipient. This change is permanent.
Businesses: Backup withholding is decreasing in 2018. Taxpayers are required to deduct backup withholding on certain non-wage payments made to those who filed information returns but they had missing or incorrect taxpayer identification numbers. The backup withholding rate is 28% through Dec. 31, 2017. But under the Tax Cuts and Jobs Act, it will be reduced to 24% on Jan. 1, 2018. Payments that may be subject to backup withholding include commissions, fees, other payments for work performed as an independent contractor, interest and dividends.
The medical expense deduction gets a temporary boost under the new tax law. Taxpayers can claim medical expenses as an itemized deduction to the extent the costs exceed a limit. For decades, that limit was 7.5% of adjusted gross income (AGI). Then, in recent years, the limit was raised to 10% of AGI. However, the Tax Cuts and Jobs Act rolls back that limit to 7.5% for both 2017 and 2018, allowing more people to qualify for this tax break, if they continue to itemize deductions. Check with your tax advisor for information in your situation.