Tax Overhaul

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (H.R. 1) amending the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.

According to the bill’s summary, with respect to individuals, the bill:

  • Replaces the seven existing tax brackets with four brackets (12 percent, 25 percent, 35 percent, and 39.6 percent).
  • Increases the standard deduction.
  • Repeals the deduction for personal exemptions.
  • Establishes a 25 percent maximum rate on the business income of individuals.
  • Increases the child tax credit and establishes a new family tax credit.
  • Repeals the overall limitation on certain itemized deductions.
  • Limits the mortgage interest deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million).
  • Repeals the deduction for state and local income or sales taxes not paid or accrued in a trade or business.
  • Repeals the deduction for medical expenses.
  • Consolidates and repeals several education-related deductions and credits.
  • Repeals the alternative minimum tax.
  • Repeals the estate and generation-skipping transfer taxes in six years.

Additionally, the summary states that for businesses, the bill:

  • Reduces the corporate tax rate from a maximum of 35 percent to a flat 20 percent rate (25 percent for personal services corporations).
  • Allows increased expensing of the costs of certain property.
  • Limits the deductibility of net interest expenses to 30 percent of the business’s adjusted taxable income.
  • Repeals the work opportunity tax credit.
  • Terminates the exclusion for interest on private activity bonds.
  • Modifies or repeals various energy-related deductions and credits.
  • Modifies the taxation of foreign income.
  • Imposes an excise tax on certain payments from domestic corporations to related foreign corporations.

The final rule is effective on January 1, 2020. For more information, contact the Congruity team of professionals at: 844.247.4100.