As I am sure you have heard, Congress passed new tax legislation just in time for President Trump to call it a Christmas gift from the White House. Well, we are yet to see how much of a gift it is, but one thing we do know is that it is going to change how your taxes are figured and, for at least the next year, it will complicate your tax return. So what was included in this gift? Let’s unwrap it and see.
- Corporate tax rates lower from a maximum of 35% to 21% beginning in 2018.
- Expansion of first year depreciation: 100% bonus depreciation is allowed for qualifying property for the next 5 years. After that, the 100% will decrease by 20% per year until it is eliminated.
- Section 179 is expanded, which allows businesses to immediately expense qualifying property. It would increase from $510,000 in 2017 to $1 million in 2018.
- Restriction of business interest deductions: Beginning in 2018, interest would be limited to 30% of adjusted gross income, but only on businesses with revenue above $25 million.
- Net operating losses can no longer be carried back two years. It also limits the net operating loss deduction to 80% of taxable income for losses incurred after December 31, 2017.
- Like kind exchanges are eliminated for personal property such as equipment or vehicles, but are still allowed for real property.
- Cash accounting has been expanded to businesses that have $25 million of gross receipts or less.
- Domestic Production Activities Deduction (DPAD) has been eliminated beginning in 2018.
- Corporate AMT (Alternate Minimum Tax) would be eliminated for businesses.
- Individual tax brackets have lowered to the seven rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. The top rate lowered from 39.6% to 37%. Maximum rates for capital gains and qualified dividends remain as they are under current law.
- Standard deduction increases to $24,000 for married taxpayers, $12,000 for single taxpayers and $18,000 for head of households. In 2017, the standard deduction is $12,700 for married taxpayers, $6,350 for single taxpayers and $9,350 for head of households, so it is almost double the deduction.
- Personal exemptions are eliminated. The personal exemption is $4,050 for each taxpayer and dependent for the 2017 tax year.
- Child tax credit is increased from $1,000 per child to $2,000 per qualifying child. This applies to children under 17 at the end of the year. The act also would allow $1,400 to be refunded.
- There are several changes to itemized deductions: the deduction of state income taxes and property taxes will be limited to a maximum of $10,000; home mortgage interest will be restricted to only new acquisition indebtedness up to $750,000; and home equity line of credit interest will no longer be deductible. Also, miscellaneous deductions such as employee business expenses, investment fees and tax preparation fees will no longer be deductible.
- Alimony payments are no longer deductible which means that the income is no longer taxable as income to recipients.
- Moving expenses are no longer deductible unless you are a member of the Armed Forces.
- Individual AMT (Alternate Minimum Tax) would be retained, but the exemption amounts will be substantially increased so less people are affected by it.
- Penalty for not having health insurance coverage will be eliminated beginning in 2019.
These are just some of the changes to the tax law. We will continue to research and monitor the changes to see how this unfolds so we can continue to advise you on the effects of this new tax law. Each individual will need to look at their personal tax situation to determine how big of a reduction in taxes they will receive – that is, if they receive any reduction. In the meantime, HO-HO-HO and Happy New Year!
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen, Hurst, Clark & Smith, P.C. celebrates 65 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and investment expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHC&S is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHC&S feels is vital in today’s business environment.