Tax Cuts and Jobs Act

In August I was fortunate to present to a group of business professionals the exciting topic of the 2017 Tax Cuts and Jobs Act (TCJA).  This act brought about several changes and I spoke about the larger implications to taxpayers and businesses.

One of the changes with the TCJA were the taxable income brackets, which are now broader.  Meanwhile, most tax percentages decreased. The net result meant a lower tax percentage for most taxpayers and paying less tax overall.  The following chart shows the difference between tax years for those filing married jointly.

 

2017 Taxable Income 2018 Taxable Income
10% $0 – $18,650 10% $0 – $19,050
15% $18,651 – $75,900 12% $19,051 – $77,400
25% $75,901 – $153,100 22% $77,401 – $165,000
28% $153,101 – $233,350 24% $165,001 – $315,000
33% $233,351 – $416,700 32% $315,001 – $400,000
35% $416,701 – $470,700 35% $400,001 – $600,000
39.6% $470,701 or more 37% $600,001 or more

 

In addition to the percentage and income bracket changes, there were several other impacts to come from this act.

Individual:

  • On the positive side, the standard deduction almost doubled from $12,700 to $24,000.  This change means fewer people will be taking itemized deductions at tax time as we have discussed in early entries.
  • The Child Tax Credit doubled from $1,000 to $2,000 and the phased out for the credit has been raised to $400,000.
  • 529 Education Plans now encompasses elementary and secondary public or private schools.  
  • Personal exemptions have been eliminated
  • Alimony is no longer allowed as a deduction by the payer, nor as income for the receiver effective on divorces beginning after 12/31/18.

 

Business:

  • C Corporations now pay a flat 21% of their taxable income which is a change from a varied rate before.  The rate before ranged from 15 to 35% depending upon taxable income.
  • Depreciation has seen some big changes as well.  The Section 179 expense allowed was $500,000 and that has been raised to $1,000,000.  The Phase-out threshold for depreciation has increased by the same amount to $2,500,000.  
  • The new 20 percent QBI deduction, is a powerful tool that will reduce the taxes associated with income from many pass-through businesses. This may encourage pass-through businesses to stay in their current form, rather than converting to a C Corporation.

At the end of my presentation, I provided 4 real life client examples comparing their tax situation in 2017 against how it will look with the new changes.  If you are interested in learning more about how the TCJA will impact you, my door is open!