By Frank Mango
As most of us now know on December 22, 2017, President Trump signed The Tax Cuts and Jobs Act (TCJA) into law. The provisions contained in the new law mark the first major overhaul to our federal tax system since 1986.
Those promoting the new tax law are suggesting that anywhere from “all”, to “most”, to the “average” American will realize a tax decrease. At the same time, some of these same individuals were hedging their statements, by saying that those of us in “high” tax states, such as New Jersey, have been subsidized by those in low tax states and could see a tax increase. Your particular situation depends on the many items that make up your individual tax return. For some there could be some planning opportunities knowing what changes may affect you.
Here are some major provisions of the new tax law.
Corporations maximum tax rate goes from a maximum of 35% down to flat 21%. This can be a good thing for US businesses that use the additional cash to create jobs, raise wages, and boost dividends.
Individual mandate of the Affordable Care Act (ACA) is repealed.
For business income from pass-through entities, including sole proprietorships, partnerships, and S corporations there is a special 20% deduction, but not all business will qualify. The nature and amount of income will determine qualification.
Entertainment expenses for businesses are eliminated as a deduction. Deduction for business meals remain the same.
Individual tax rates have been reduced capping out at 37%. The previous high was 39.5%.
Exemption deductions of $4,050 have been eliminated. As an example, a family of five loses a $20,250 deduction.
State and local tax deduction is limited to $10,000. This includes state income, property, and sales taxes. This item alone will knock many out of having itemized deductions who will then be utilizing the newly expanded standard deduction (Married filing joint – $24,000; Single $12,000).
Employee expenses such as meals and entertainment, and business use of a vehicle have been eliminated. (These are the so-called 2106 expenses).
Alternative Minimum Tax (AMT) was originally to affect only the wealthy, but through the years more and more middle-class taxpayers have found themselves paying this additional tax. The new tax law increases the exemption for the AMT from $54,300 to
$70,300 for single filers, and from $84,500 to $109,400 for married joint filers.
Child Tax Credit has been expanded from $1,000 to $2,000 per qualifying child, $1,400 of which is refundable.
529 college savings has been expanded and now be used toward qualified expenses of public, private, or religious elementary and secondary schools (K-12).
Alimony for divorces finalized after December 31, 2018 will no longer be deductible by the payor or included in income by the recipient.
Home mortgage interest on new mortgages is now deductible for up to $750,000 of acquisition indebtedness. Home equity loan interest has been eliminated as a deduction for new loans.
These are just a few of the highlights of the 1,000+ pages of the TCJA. I expect that there will be clarification in the way of amendments, I.R.S. regulations, opinions, and case law.
This article is not intended to provide tax advice. Before making any decision or taking any action, you should consult a professional adviser regarding your specific fact pattern.
Frank Mango is a Certified Public Accountant with a practice in West Long Branch