RBF Special Bulletin
December 21, 2017
 
Our special bulletins bring you important tax, business and financial news between regularly-scheduled issues of RBF News.  Here's an important matter we think you should know about.
 
Highlights of changes contained in the  GOP tax reform bill
Republicans on Wednesday sent a $1.5 trillion tax overhaul to President Trump for his signature, paving the way for the first major rewrite of the U.S. tax code in 31 years. The new law's effects promise to be far-reaching for individuals, businesses, estates and trusts. The three tables below highlight just some of the changes that will likely impact you:

Individual Income Tax
Current Law New Provisions
Individual Income Tax Rates and brackets Seven brackets; Top Rate 39.6%
$426,700 / $480,050
Single / Married Filing Jointly
Seven brackets; Top Rate 37%
$500,000 / $600,000
Single / Married Filing Jointly
Individual Alternative Minimum Tax Alternative income tax calculation for high-income taxpayers Same, but increase in exemption which will result in fewer taxpayers paying
Standard Deduction $6,500 / $13,000
Single / Married Filing Jointly
$12,000 / $24,000
Single / Married Filing Jointly
Personal exemptions $4,150 per taxpayer and dependent Eliminated
Itemized Deductions:
  • State and local tax deduction
Income or sales and property taxes are deductible All state and local and real estate tax deductions limited to $10,000
Note: The new law contains a provision that you cannot prepay and deduct 2018 state and local income taxes in 2017
  • Mortgage interest deduction
Can deduct interest payments on up to $1.1 million of debt Limited to payments on $750,000 of debt for mortgages originated after 12/31/2017
  • Medical expenses deduction
Can deduct out-of-pocket expenses in excess of 10% of adjusted gross income Expands by reducing threshold to 7.5% of income. Applies to 2017 and 2018
Individual Mandate Penalty for not having health insurance Eliminated starting in 2019
Pass-through income (S-Corp, Partnership & Sole Proprietor) Taxed at individual rates 20% deduction, phasing out starting at $315,000 of income for couples
Long Term Capital Gains Top rate of 23.8% (including net investment income tax) No change

Corporate Income Tax
Current Law New Provisions
Top corporate tax rate 35% 21%
Business interest deduction Generally fully deductible Limits deduction to 30% of income (excluding depreciation)
Alternative Minimum Tax Alternative income tax calculations for businesses Eliminated
Section 179 expensing for certain assets Small business expensing limited to $500,000 Increases limit to $1 million
Bonus Depreciation 50% current year deduction for new property 100% for new and used property acquired after 9/27/17 (retroactive)
Net operating losses Can deduct net operating losses from income in other years Limits the deduction to 80% of taxable income
NOL Carryback Carryback 2 years and forward 20 years No carry-back and can be carried forward indefinitely

Estate Tax
Current Law New Provisions
Estate Tax Rates Top tax rate of 40% on estates above $5.6 million Increases the threshold to estates above $11.2 million

RBF is working hard to assess the simultaneous working-parts and nuances contained in the bill to better advise you about a number of areas that are not yet clear, such as:
  • Whether state and local tax attributable to flow-through entities (S-Corps, Partnerships and LLC's electing taxation as either S-Corps or Partnerships) is or is not included in the $10,000 deductible ceiling;
  • The S-Corp vs. C-Corp debate, which in turn requires assessment of other factors contained in the bill, such as the definition and mechanics of the 20% deduction for "qualified business income" from flow-through entities.
As further details become available once the bill becomes law, we will provide more comprehensive information to keep you up-to-date. In the meantime, we wish you all a very happy holiday season, and look forward to working with you in the New Year!
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  RBF is the New England-area affiliate of Russell Bedford International, a leading global network of independent accounting and business consulting firms.
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