In December 2017, lawmakers passed the Tax Cuts and Jobs Act (the ‘Act’), a sweeping reform law that impacts pretty much everyone. Since we just finished the crush to April 15th, I thought it would be a good idea to recap what this year will bring. Our follow-on email will address the 10 Breaks That Went Away.
10 New Tax Breaks
1. Doubled standard deduction (2018-2025). In 2018, the standard deduction is $12,000 for single taxpayers, $18,000 for taxpayers filing as heads of household, and $24,000 for married couples filing jointly.
2. New brackets and lower rates. Top individual tax rates dropped from 39.6% to 37%, with seven brackets that vary by income: 10, 12, 22, 24, 32, 35 and 37%.
3. Child tax credit increased. The child tax credit increased from $1,000 to $2000 per qualifying child, subject to a maximum refundable amount and increased income phase-outs.
4. Higher limits on charitable deductions. The deduction limit for cash donations to qualifying charities increased from 50 to 60% of adjusted gross income (AGI). The increased limit may more tax savings for charitably inclined, high income earners.
5. Annual gifting expanded. The IRS increased the annual gift tax exclusion from $14,000/year to $15,000/year per beneficiary, giving the opportunity pass even more wealth free of estate and gift taxes through yearly gifts.
6. Reduced estate tax exposure. The lifetime exemption amount for estate and gift tax purposes has been substantially increased to $11.18 million per person (or $22.36 million for married couples who timely elect portability, which is the ability to carry-over unused exclusion amount of a deceased spouse) in 2018. If you previously exhausted your lifetime exclusion amount through gifting, you may have a second chance to make additional, tax-free gifts for a limited time.
7. Individual AMT modified. The Act temporarily increased the exemption amounts of phase-out thresholds for the individual AMT. Generally, this means fewer taxpayers will be subject to the individual AMT.
8. 20 percent deduction on qualified business income. Sole proprietors and owners of businesses taxed as pass-through entities – including partnerships, S corporations, and most LLCs – may see tax savings if they qualify for the deduction.
9. Corporate flat tax rate. C corporations and personal service corporations now have a flat 21 percent tax rate, one of the few permanent provisions in the Act. (By comparison, the previous rate was 39%, the highest in the world. Ireland’s is 12%, which is why numerous companies moved there.)
10. Corporate AMT permanently eliminated. This tax impacted certain C corporations.
This tax Act is already proving substantially effective, especially for the middle class. And there is more to do. An important point to remember: sometimes it’s easy to say – “Well, that doesn’t apply to me.”, when the truth is – tax policies affect all of us – often indirectly. From federal to state, there are taxes buried in nearly everything you purchase or do.
“What about your cable bill? Your power bill? Your water bill? The cost of a gallon of gas, a cab ride, a hotel stay and a movie ticket are all inflated by hidden fees. How much of what you pay at the pump, the box office or the airport is really an indirect tax?”
This is a quote from a book I’m looking to purchase in bulk for clients. A humorous, fact-laden expose on what our tax system has become, that consumes up to half of your income.
Look for the next email – 10 tax breaks that went away – because they’re just as important.