The following is a summary of key provisions in the new tax bill the president just signed:
Key business provisions in the final bill:
– Permanently reduces the 35% C corporation income tax rate to 21%, effective January 1, 2018.
-Individuals will be allowed a deduction equal to 20% of qualified business income from pass-through entities and sole proprietorships. The deduction will phase out for service providers other than Engineers and Architects whose taxable income exceeds $315,000 for married filing joint taxpayers ($157,500 for individuals). The definition of service providers generally includes Accountants, Attorneys, Health care Providers, Consultants and Financial Advisors.
– Repeals the domestic production activities deduction (DPAD) under Internal Revenue Code (IRC) Section 199, which provided a 9% deduction on qualified production income, effective for tax years beginning after 2017.
– Repeals the corporate alternative minimum tax (AMT), effective for tax years beginning after 2017.
– Limits deductions for net interest expense for larger companies to 30% of adjusted earnings before interest, depreciation and amortization through 2021.
– IRC Section 179 expensing will be increased to $1 million for “qualified property” (i.e., tangible personal property used in a trade or business) placed in service in tax years beginning after 2017, with a phase-out beginning at $2.5 million; additionally, the term “qualified property” will be expanded to include certain depreciable personal property used to furnish lodging, and improvements to nonresidential real property (such as roofs, heating, and property protection systems).
– Allows businesses to expense 100% of the cost of certain new and used “qualified property” (bonus depreciation) placed in service after September 27, 2017, and before 2023, and gradually phases down the increased expensing starting in 2023 by 20 percentage points for each of five following years.
– Limits the net operating loss (NOL) deduction to 80% of taxable income, eliminates NOL carrybacks for most taxpayers and allows indefinite carryforwards for losses arising in tax years beginning after 2017.
– Limits the nonrecognition of gain in like-kind exchanges to those involving certain real property only, thereby repealing rules allowing deferral of gain on like-kind-exchanges of business personal property and investment property, effective for exchanges completed after 2017.
-Limitation on the deduction for entertainment expenses. All Meal expenses are now limited to 50%, including meals provide for the convenience of the employer, which used to be 100% deductible.
-No deduction for sexual harassment settlements if connected to a non-disclosure provision.
-No changes to the R&D and other business tax credits.
Key provisions in the final bill affecting individuals, all of which generally will be effective for tax years beginning after 2017 and will expire at the end of 2025 (unless otherwise noted), include:
-Modifies the current seven income tax brackets for individual taxpayers to rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%.
-Personal exemption deduction goes away; the standard deduction goes up to $24,000 for married filing joint taxpayers, $18,000 for head of household and $12,000 for single taxpayers.
– Increases the “exemption amounts” for the individual AMT, including significant increases in the amounts at which the exemption phases out.
– Limits deductibility of interest on new home mortgages (signed December 15, 2017 or later) of $750,000 or more. Eliminates the ability to deduct interest on home equity lines of credit.
– Limits the itemized deduction for state taxes to $10,000 for the aggregate amount of property tax and income tax (or sales taxes). Disallows the deduction for prepaying 2018 state taxes in 2017.
– Doubles the child tax credit to $2,000 generally with up to $1,400 of the credit refundable.
– Retains the estate tax but doubles the exemption to approximately $11 million.
– Extends the medical expense deduction floor of 7.5% of adjusted gross income (AGI) in 2017 and 2018, and expenses that exceed 10% of AGI thereafter.
-Repeal of 2% miscellaneous expense, investment fee and unreimbursed employee business expense deductions.
– Individual mandate penalty for health care coverage repealed for years beginning in 2019.