ALERT: Summary of the new tax bill

This alert was posted prior to the passing of more recent tax legislation.  Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.

ALERT: Summary of the new tax bill

With Congress passing the new tax bill, many changes will impact you and your business. We have summarized major changes for individuals, businesses, and estates and gifts. In general, most individual changes are set to expire by the end of 2025, but most corporate provisions would be permanent. The bill includes many other small provisions that we will keep you apprised of as we have more time to digest the finer points of the bill.
Individual Tax Highlights
  • Retains seven tax brackets, but lowers each rate and widens each bracket
  • Increases the standard deduction to $24,000 for married filing jointly, $18,000 for head of household, and $12,000 for single filers
  • Eliminates the deduction for personal exemptions
  • Limits the deduction for total state and local, sales, and real estate taxes paid to $10,000
  • Increases the child tax credit to $2,000, with up to $1,400 refundable
  • Provides a nonrefundable credit for nonchild dependents (ailing parents or disabled adult children) of $500
  • Expands the use of 529 college savings plans to include distributions for elementary or secondary school tuition up to $10,000 per year
  • Eliminates the deduction for moving expenses other than for members of the armed services
  • Eliminates the deduction for home equity loan interest
  • Allows qualified mortgage interest deductions on loans up to $750,000; existing mortgages would be unaffected by the change
  • Retains the deduction for medical expenses and temporarily expands the deduction by reducing the threshold to 7.5% of income
  • Retains the individual alternative minimum tax, but increases exemption amounts
  • Eliminates the deduction for alimony paid and the taxability of alimony received for divorces executed after December 31, 2018
  • Disallows any deduction for expenses associated with entertainment activities and membership dues with respect to any club organized for business, pleasure, recreation, or any other social purposes and facilities used in connection with any of these activities (the 50% deduction for business meals remains)
  • Creates a 20% income tax deduction for some pass-through income from businesses other than personal service companies
  • Eliminates the health insurance mandate penalty beginning in 2019
  • Doubles the deduction for classroom expenses paid by educators to $500
  • Simplifies the Kiddie Tax by disconnecting it from the parents' tax situation and the unearned income of any siblings; the tax rate for a child's unearned income will be based solely on the tax brackets applicable to trusts and estates
  • Eliminates the deduction for miscellaneous itemized deductions, including deductions for investment fees, unreimbursed employee business expenses, and home-office expenses
Note: Unrelated to the current tax bill, the IRS is currently focusing on the proper reporting of bitcoins and all other cryptocurrency. This currency is being treated as property and all sales and uses of this currency create reportable capital gains or losses. Any mining of cryptocurrency creates self-employment income.
Business Tax Highlights
  • Reduces the corporate tax rate to 21%
  • Caps the business interest deduction at 30%
  • Eliminates the business alternative minimum tax
  • Allows a 100% first-year bonus depreciation deduction for adjusted basis for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023
  • Increases the section 179 expensing limit to $1 million
  • Limits the deduction for net operating losses to 80% of taxable income
  • Mandates that research and development expenses be written off gradually
International Tax Highlights
  • Moves the United States to a modified territorial tax system that generally does not subject American companies' foreign earnings to U.S. taxes, with an anti-abuse tax
  • Taxes companies' current offshore earnings at 15.5% for liquid assets and 8% for illiquid assets

Estate and Gift Tax Highlights

  • Increases the taxable threshold to estates above $11.2 million (Massachusetts still taxes estates greater than $1 million)
  • Increases the gift tax threshold as above (Massachusetts has no gift tax)

The new Tax Cuts and Jobs Act is complex, and we are here to support you. We wish you and your family a happy holiday season. We look forward to working with you in the new year.