What the new tax law means to you

By now you are aware of the Tax Cuts and Jobs Act, which was passed and signed into law at the end of December. It’s the first major overhaul of tax law in three decades, but what does the act mean for you and your business?

One of the law’s key provisions is that it modifies individual tax brackets. Seven tax brackets remain, but the tax rates are different. Most of the tax rates will be 1 to 4 percentage points lower than before, and the income ranges will be higher. For instance, a married couple filing jointly with an income of $75,900 to $153,100 were in the 25% tax bracket under the old tax law. Under the Tax Cuts and Jobs Act of 2017, those with income of between $77,400 and $165,000 will be in a 22% tax bracket.

There is no longer a personal exemption, but the standard deduction is going way up — from $6,350 to $12,000 for a single taxpayer and from $12,700 to $24,000 for married taxpayers filing jointly. Itemized deductions will change as well. Under the previous law, phase out of deductions begins at $261,500 for single taxpayers and $313,800 for married taxpayers. Under the new tax law, the following are in place:

• Old phase outs are suspended until 2026
• Mortgage interest deduction is limited to a maximum of $750,000 debt
• Home equity line of credit deduction is eliminated
• State/local tax deduction is limited to $10,000 of combined property taxes and state income and sales taxes
• No deductions for tax preparation, unreimbursed job and moving expenses, or other 2% floor miscellaneous itemized deductions
• Charitable contribution limits for public charities go from 50 percent to 60 percent of adjusted gross income

Child tax credits also change from $1,000 per child (limited to those with adjusted gross income of $110,000 or less) to $2,000 per child with a $1,400 refundable portion. This tax credit now will be available for those with adjusted gross incomes up to $400,000.

The changes to business income tax for limited partnerships, sole proprietorships, S-corps and partnerships are a bit more complicated. Under the old law, there was no 20% deduction for qualified business income, and business income was taxed at ordinary rates. Under the new law, taxpayers with these pass-through businesses may be eligible for a 20% deduction of pass-through income.

The corporate tax rate change has been one of the most talked about provisions. It will go from a maximum rate of 35% to a maximum rate of 21%.

The new law also changes everything from the depreciation recovery period for real property to meals and entertainment expensing. We invite you to ask your banker for insight, and of course, your tax adviser can provide professional tax services. It’s an exciting time, isn’t it?