What's Up: How will the New Tax Change Impact Me or My Business?

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A reader wrote in asking how the provisions of the recent Tax changes impact them.  I'm not a tax expert but I can give you some of the 'many' changes that go into effect as of Tax Year 2018.  What I can't do is tell you specifically how, or give you advice related thereto.

This article is provided for 'general information purposes only', it is not intended to serve as accounting, business or tax advice. You should consult with your local CPA or Tax Professional regarding any specific issues or your particular circumstances.

Be aware, many of the provisions of this Act are temporary taking effect or applying only during Tax Years 2018 through 2025.

In regard to businesses, the Corporate tax rate taking effect in 2018 is down from 35% to 21%.

One of the major changes of the new law is the impact it has upon the tax brackets for individual (and joint) filers:

  •             $0 to 9,525 ($0 to $19050) = 10%
  •             $9525 to $38,700 (19,050 to 77,400) = 12%
  •             $38,700 to 82,500 (77,400 to 165,000) = 22%
  •             $82,500 to $157,500 ($165,000 to $315,000) = 24%
  •             $157,700 to $200,000 ($315,000 to $400,000) = 32%
  •             $200,000 to $500,000 ($400,000 to $600,000) = 35%
  •             $500,000 and above ($600,000 and above) = 37%

Another significant change involves the 'Standard Deduction' which many taxpayers choose to make use of rather than itemizing their deductions.  Because of the higher standard deductions, and reduction or elimination of some 'itemized deductions' it is estimated that more taxpayers will make use of the standard deductions:

  • From $6350 to $12,000 for individual filer
  • From $9300 to $18,000 for head-of-household filers
  • From $12,700 to $24,000 for joint filers

For Individuals using itemized deductions, deductions are limited to $10,000 for state, local, property, income or sales taxes. Otherwise such taxes are allowed as a deduction only when paid in connection with a trade, business or activity related to production of income. Limitations as to assessed vs. paid taxes apply as to when such deductions can be taken.

For individuals using itemized deductions a new mortgage interest limitation applies, in that interest is deductible on mortgages of $750,000 or less. This will apply on mortgage indebtedness arising after December 2017, the current $1,000,000 limitation will continue to apply on mortgage indebtedness prior to December 2017.  Home equity indebtedness related interest is no longer allowed as of 2018, and existing home equity loans are not grandfathered under the Act.

Changes significantly reduce the impact of Alternative Minimum Tax on individuals and joint filers, and eliminate the Alternative Minimum Tax on Corporations.

New limitations on the interest that businesses may deduct. Business interest is limited to the sum of business interest income, 30% of the adjusted taxable income of the taxpayer for the tax year, and/or the interest associated with floor plan financing for the tax year. Disallowed business interest maybe carried forward on a FIFO basis.

Lower expensing threshold for assets thereby allowing businesses to write-off the entire cost of new equipment rather than being forced to depreciate only a portion of the cost.

Pass-through Business Income Deductions -  For businesses based and conducting business in the U.S., Partnership, S-corporation, LLC, and sole proprietorship ‘qualified’ business income will be subject to a 20% deduction for taxpayers whose income falls under the threshold amounts of $157,000 for individual taxpayers and $315,000 for joint filers.  The keys to this provision rest in understanding the term ‘qualified’ and computing the threshold limitations.

There are also changes to deduction of casualty losses that limit such deduction to losses only if they are attributable to a disaster declared by the President. This provision applies only during tax years 2018 through 2025.

Alimony and spousal maintenance are no longer deductible by the payor spouse, they will be taxed at the rates applicable to the payor spouse rather than the recipient spouse. These provisions to not impact the tax treatment of child support. These new provisions apply to any divorce or legal separation arising after December 31, 2018 or to any prior divorce or legal separation modified after December 31, 2018. Additional provisions apply.

The provisions listed here by no means represent the entirety of this Act, these are only brief summaries of some of the Act's highlighted changes.

The information contained herein is summary in nature, and solely for the general information of our readers. The information contained herein is not intended as any form of accounting, business or tax advice, nor as an in-depth analysis of specific issues.

In no way should the information within this article be used as a substitute for a formal accounting, business or tax advice. Should you need any accounting, business or tax advice, consult a professional.