#WakeUpWednesday #TMG – Tax Reform of 2018 and What You Need to Know, Q&A with Managing Partner Paul Talbert

As we enter 2018, we meet the new year with a new tax bill.  This bill enacts the most significant change in our country’s tax structure since 1986.
Prepared below are Managing Partner Paul Talbert’s answers to questions posed by some of our clients surrounding the new law.  In addition, we highlight portions of the bill that we believe will impact many of our clients.
Q. What is the Tax Reform Bill?  Will it have an effect on my business or me?

A. This past December, President Trump signed the new tax bill with the law taking effect as of January 1, 2018.  The bill gave way to a number of changes, many of which, we believe will have an effect on our client’s personal and business wealth.  

Q. Are there any specific portions of the tax bill my business or I should be aware of?  What can I do to get ahead of these changes and potentially benefit?

A. While every individual and or business scenario is different, there are several portions we feel will have an immediate impact on your business and or personal wealth. 

Changes that take place on a corporate level;

1. New Corporate Tax Rate of 21% – Arguably one of the most significant changes in the new law is the permanent reduction of the corporate income tax rate to 21%. The rate reduction takes effect on January 1, 2018.  This new law also eliminates the corporate AMT (Alternative Minimum Tax).

  • The new law does not distinguish between investment income and business income earned by corporations for purposes of applying the 21% tax rate.
  • The new law reduces the PSC (Personal Service Corporations) tax rate to the general corporate tax rate bringing it well under the 37% top rate for individuals.

2. Temporary Deduction against Business Income Earned by Passthrough entities

  • The new law allows some non-corporate owners (individuals, trusts, or estates) of certain partnerships, S corporations and sole proprietorships to claim a 20% deduction against qualifying business income.  This is set to expire post 2025.

3. 100% Bonus Depreciation Rule

  • The new law temporarily allows a “bonus” depreciation deduction of 100% (up from previous 50%) allowing taxpayers to write off immediately the cost of acquisitions of plant and equipment. Modifying the previous rule further, this deduction will apply to both new and used equipment.

4. Revenue Raising Provisions

  • Limits the carryover of net operating losses to 80% of taxable income and eliminates the carryback with exceptions for certain insurance companies and farming institutions.
  • Limits the deductibility of net business interest expense to 30% of adjusted taxable income. While this law at present provides some broader terms on how to calculate adjusted taxable income, in 2022 this definition narrows significantly.

Changes that take place on an individual level;

1. Alternative Minimum Tax Exemptions increased from $86,200 (married) and $55,400 (single) to $109,400 and $70,300 respectively.

2. Individual Standard Deduction has increased from $13,000 (married) and $6,500 (single) to $24,000 and $14,000 respectively.

3. Itemized Deductions have been significantly limited and now pertain to a $10,000 limit on “SALT” (State and Local taxes) per married filer and $5,000 for those individuals filing as single.

4. Mortgage Interest as an Itemized Deduction has been limited significantly to a combined total of $750,000 for both filers.

Although these are just a handful of changes to be cognizant of and every case may differ, the new law should be taken into consideration in its entirety.  Therefore, in order to properly get ahead of these changes, it is extremely important to meet with us over the coming months.  We will work to ensure your tax strategy is as efficient as possible.  Please feel free to contact our office at your earliest convenience to setup an appointment (ctalbert@talberttax.com).

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