On December 22, (H.R. 1), commonly referred to as the “Tax Cuts and Jobs Act”, was signed into law providing a sweeping tax reform law that substantially changes the tax landscape. The new law reflects the largest major tax reform in over three decades. We have been busy working our way through the hundreds of pages of statutory text. This comprehensive tax overhaul dramatically changes the rules governing the taxation of individual and business entity taxpayers.
Highlights of the Tax Cuts and Jobs Act for Individuals
For individuals, some highlights include:
- providing new income tax rates and brackets;
- increasing the standard deduction to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers;
- suspending personal deductions;
- increasing the child tax credit to $2,000 per qualifying child and increasing the income levels at which the credit is phased out to $400,000 in the case of a joint return and $200,000 in any other case;
- adding a $500 credit for non-child dependents;
- limiting an individual’s state and local tax itemized deduction to up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of state and local property taxes and income taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year; and
- temporarily reducing the medical expense threshold, among many other changes.
New Deduction for Pass-Through Entities
The new tax law also provides a new deduction for non-corporate taxpayers with qualified business income from pass-throughs (partnerships, LLCs taxed as partnerships, and S-corporations) and sole-proprietors allowing a deduction of up to 20% for certain qualified business income. Cooperatives and REITs are also eligible for preferential treatment on qualified business income. The computations for what constitutes qualified business income and amounts eligible for the 20% deduction can be complex and in some cases the deductions may be limited by the amount of wages that are paid by the trade or business.
Corporate Tax Rate Reduced to 21%
For C-corporations, the new tax law reduces the corporate tax rate to 21%, repeals the corporate alternative minimum tax, imposes new limits on business interest deductions, and makes a number of changes involving expensing and depreciation. The legislation also makes significant changes to the tax treatment of foreign income and taxpayers, including the exemption from U.S. tax for certain foreign income and the deemed repatriation of off-shore income.
Other Highlights of the Tax Cuts and Jobs Act
Historic Redevelopment Tax Credits: For amounts paid or incurred after Dec. 31, 2017, the previously available 10% credit for qualified rehabilitation expenditures with respect to any pre-’36 building is repealed and the immediate 20% credit for qualified rehabilitation expenditures with respect to a certified historic structure is replaced with a 20% credit for qualified rehabilitation expenditures with respect to a certified historic structure which can be claimed ratably over a 5-year period beginning in the tax year in which a qualified rehabilitated structure is placed in service.
FMLA Credit: For wages paid in tax years beginning after Dec. 31, 2017, but not beginning after Dec. 31, 2019, the Tax Cuts and Jobs Act allows businesses to claim a general business credit equal to 12.5% of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave (FMLA) if the rate of payment is 50% of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.
In the coming weeks, Shuttleworth will provide more detailed analysis of the various provisions of the new law.
Give us a call.
The attorneys at Shuttleworth are looking forward to the opportunity to discuss the impact and opportunities that are available for you or your business under the new tax laws.
Tax Law Practice Group
The Shuttleworth & Ingersoll, P.L.C. Tax Law attorneys provide comprehensive tax planning, preparation, and compliance services to individuals and businesses in all areas of taxation.