Tax Reform Summary

Posted by Denis Smirnov

On December 22, 2017 President Trump singed “Tax Cuts and Jobs Act of 2017” overhauling the nation’s tax code. Here are some highlights that will impact many of you:

Highlights

  •  Most provision are effective 1/1/2018 and do not apply to 2017 tax filing.
  •  Most people will see a reduction in overall federal income taxes due to lower tax rates and higher limits in each bracket.
  • Standard deduction is nearly doubled to $24,000 for married couples ($12,000 for single) so fewer taxpayers will itemize.
  •  Personal exemptions are eliminated but there is still an exemption for taxpayers over age 65.
  • There is no longer a charitable deduction for “priority seating” payments to athletic departments, which presumably includes UA basketball.
  • Money in 529 plans can now be used for elementary or secondary school (public, private or religious schools) up to  $10,00 per year.
  • Annual gift exclusion is increased to $15,000 for 2018.

More details

  •  The tax credit for children is now $2,000 per child under 17 and is available for married couples with less than $400,000 of income ($200,000 of income for single filers).
  • Charitable contributions are still deductible but would have to be fairly high to provide tax benefit above the standard deduction.
  • There are new limitations on deductions for mortgage interest and local/state taxes. This will mostly impact high-tax coastal areas with fewer people affected in Arizona.
  • Miscellaneous itemized deductions such as professional fees (including ours) and unreimbursed business expenses have been eliminated.
  • Preferential treatment of capital gains and qualified dividends has not changed thus providing opportunities for annual tax planning.
  • Estate tax exemption has been doubled to $11.2 million ($22.4 million for couples).
  • New 20% deduction of “qualified business income” will reduce taxes for most small business owners (LLCs, partnerships, S-corps, sole proprietorships).
  • It remains to be seen how each state will respond to the Federal changes – they can choose whether to conform to federal rules for 2018 state tax filing.

We’ll be incorporating these modifications into our annual tax planning for each client to make sure we take advantage of any opportunities particular to your situation.