New Tax Reform, Tax Cuts & Jobs Act

President Trump recently signed the tax reform bill into law which resulted into major changes to the code for both individuals and corporations. Here is a brief summary of the changes that will affect most of you.

•  Tax Brackets – Same number of brackets, different tax rates and different ranges. If your taxable income is the same in 2018 as was 2017, you will pay less federal taxes. A lot of the difference are in the changes leading to “taxable income”.

•  The marriage penalty is almost gone. – Under the old law the combined income for a married couple was taxed at a higher rate than the same total income for 2 individuals. For example: a single person with taxable income of $90K would be in the 25% bracket. A couple with $180k in taxable income is in the 28% bracket. Under the new law, both cases are in the 25% bracket.

• New Standard Deductions

• Capital Gains (stock sales and sales of other appreciated assets)

• • Short term gains are taxed as ordinary income (no difference)
  • Long term rates are as follows:

• Tax Breaks for Parents. The child tax credit is increased from $1,000 per child to $2,000 per child. Of that amount $1,400 is refundable. In addition, the phase out for eligibility is expanded.

• • If children are 17 years and older or you care for elderly relatives, you can claim a nonrefundable credit of $500 each.

• Home mortgage interest can only be taken for mortgage balances up to $750,000. This was previously $1 million. This applies to loans taken after Dec. 15, 2017. Interest on home equity debt can no longer be deducted.

•  State and Local Tax Deduction (SALT) is now limited to $10,000.

•  Deductions that are disappearing:

• •  Casualty and theft losses
  • Unreimbursed employee expenses
  • Moving expenses

• Pass-through income from sole proprietorship, LLCs, partnerships, and S corporations will be able to deduct 20% of the profit. There are phaseout income limits that apply to “professional services” business owners. They are $157,500 and $315,000 for individuals and married couples respectively.

• Corporate tax rates have been reduced for most corporations, but not for all. A corporation with profit below $50,000 will pay more in taxes. The new rate is 21% for all profits. The old rates were:

•  Interesting: If in 2017 your corporate profit was $50,000; your federal tax was $7,500 (50K * 15%). That tax increases under the new law to $10,500 (50K * 21%).  Let’s hope this is corrected soon.