The new tax law has dominated political discussion for months and will likely continue to do so well into 2018. Consequences, both intended and otherwise, are still unclear. But for now, these are the big changes for both individuals and companies. In general, the changes to individual provisions expire at the end of 2025, but the corporate changes are permanent.
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Taxes for Individuals
The big news here is bracket changes. They’ve changed and are generally lower:
- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples)
- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples)
- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples)
- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples)
- 37% (over $500,000; over $600,000 for couples)
The standard deduction nearly doubles, to $12,000 for singles and $24,000 for couples. This means fewer people will find it advantageous to itemize.
Those who continue to itemize, however, will see significant changes — especially if they’re homeowners:
- All state and local tax deductions are limited to $10,000.
- The mortgage interest deduction is limited to payments on $750,000 of debt. If you bought a property before Dec. 15, 2017, you’re in luck: the current $1 million will be grandfathered in. Home equity loan interest is still deductible, but only in limited situations.
The alternative minimum tax is still in existence, but the exemption is increased, meaning fewer will be paying it.
The child tax credit is doubled to $2,000, with a refundable portion up to $1,400.
The estate tax is still with us, but the exemptions have been doubled. The number of families that will be subject to the federal estate tax is now vanishingly small.
Taxes for Businesses
The big story here is the lowering of the tax rate from 35% to 21%. However, there are other important provisions:
- The corporate AMT is eliminated.
- The limit on Section 179 expensing is increased to $1 million.
- The new law limits the deduction for net operating losses to 80% of taxable income.
- Instead of being an immediate deduction, research and development expenditures will need to be written off gradually. (This provision doesn’t kick in immediately, however.)
- “Passthrough” companies get a 20% reduction, but there is an income phaseout.
According to the IRS, the new law also disallows “employer deductions for (1) activities generally considered to be entertainment, amusement, or recreation; (2) membership dues for clubs organized for business, pleasure, recreation, or other social purposes; or (3) a facility used in connection with the above items, even if the activity is related to the active conduct of trade or business. It also disallows deductions for expenses associated with transportation fringe benefits or expenses incurred providing transportation for commuting (except as necessary for employee safety).”
Businesses and individuals will need to carefully consider what their situation is in 2018 and plan accordingly.
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