Notable Items That You Should Know About
As promised, Congress has passed sweeping tax legislation, and the bill is on its way to the President for signature. A note of caution: We have heard numerous reports in various media outlets that have contained inaccurate information. These differences could be the result of the many discussions, both on and off the record, last minute deals and compromises as the bill moved closer to vote, or incorrect interpretations of bill provisions. No one will know the exact implications until the bill is actually signed into law (probably before Christmas) and there has been ample time to break down all of the details. We will continue to follow the process closely. Until then, below is a sample of some of the key provisions as they currently are written.
With respect to individuals, some of the more notable items included in the Conference Bill are:
- the provision of seven tax brackets, with a top rate of 37 percent (the top rate under present law is 39.6 percent). The current tax rates of 10%, 15%, 25%, 28%, 33%, 35%, 39.6% rates would be replaced with tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%;
- a repeal of the personal exemption deductions and an increase in the standard deduction amounts to $24,000 for joint filers and surviving spouses, $18,000 for heads of household, and $12,000 for unmarried taxpayers and married filing separately (additional amounts for the elderly and blind are retained);
- a $10,000 limit on the deduction for state and local taxes, which can be used for both property taxes and income taxes (or sales taxes in lieu of income taxes);
- a $750,000 limit on the loan amount for which a mortgage interest deduction can be claimed by individuals, with existing loans grandfathered, and the repeal of interest deductions on home equity indebtedness;
- a repeal of miscellaneous itemized deductions subject to the 2 percent of adjusted gross income floor;
- a repeal of the personal deduction for casualty and theft losses, except for losses incurred in presidentially declared disaster areas;
- an increase in the child tax credit to $2,000 ($1,400 is refundable) and an increase in the phaseout threshold amounts to $400,000 for joint filers and $200,000 for all others (the credit is $1,000 under present law and is fully refundable);
- an increase in the alternative minimum tax (AMT) exemption amounts and the adjusted gross income thresholds at which the exemption amount begins to phase out;
- a repeal of the deduction for alimony paid and corresponding inclusion in income by the recipient, effective for tax years beginning in 2019 (alimony paid under separation agreement entered into prior to the effective date is generally grandfathered);
- permanent repeal of the individual shared responsibility payment (individual healthcare mandate) enacted as part of the Affordable Care Act (ACA); and
- the expiration of most individual tax provisions after December 31, 2025.
The Conference Bill also provides a 20 percent deduction against qualified business income from passthrough business entities. The provision includes relatively relaxed rules for calculating qualified business income for individuals with taxable income below certain thresholds ($315,000 for joint filers, $157,500 for all others), and stricter ones that are phased in for individuals with taxable income above the thresholds.
The Conference Bill would reduce the corporate tax rate to 21 percent and fully repeals the corporate alternative minimum tax. Both changes would be effective for tax years beginning after December 31, 2017.
Other important business-related changes include (1) 100% bonus depreciation for qualified property placed in service before January 1, 2023; (2) a permanent increase in the Section 179 expensing limit to $1,000,000 (up from $500,000 under present law) and a permanent increase in the phase-out threshold amount to $2,500,000 (up from $2,000,000 under present law); (3) a reduction in the gross receipts amount under which a business can qualify to use the cash method of accounting; and (4) an exemption from the requirement to use inventories for certain taxpayers.
While digesting these changes, most of which are effective January 1, 2018, we are gearing up for the 2017 tax filing season. We expect to be sending out client organizers in early January. In the meantime, we wish everyone a joyous and safe holiday season!
~ Your Treasure Coast Financial Planning Team