The Tax Cuts and Jobs Act Headed to President Trump's Desk
Today, the U.S. House of Representatives and the U.S. Senate passed Tax Cuts and Jobs Act, sending the bill to President Trump’s desk for his signature. We call your attention to some of the key provisions in the law and encourage you to contact the Firm to discuss best practices for incorporating its provisions into your business, estate, and tax planning, along with any questions you may have about how the law impacts you.
Corporate Rate: The corporate rate is cut to 21 percent starting January 1, 2018.
Taxation on Pass-Through Entities: Pass-through entity owners that meet certain conditions are eligible for a 20 percent deduction on their business income. Pass-through owners who file jointly and earn at least $315,000 in business profits are subject to limitation on the deduction. The restriction is based on how much the pass-through pays in wages or invests in equipment and machinery. Service businesses, such as law and accounting firms, are eligible for the deduction if owners are under the threshold. The deduction would expire in 2026.
Individual Rates: The top individual rate is 37 percent for individuals earning $500,000 and above, and joint filers earning at least $600,000. There are seven tax brackets total: 10, 12, 22, 24, 32, 35, and 37 percent. The law doubles the standard deduction to $24,000 for a couple filing jointly. The rates and standard deduction expansion expire in 2026.
Interest Deductibility: The law limits the interest deduction to 30 percent of a company’s earnings before interest, tax, depreciation, and amortization (EBITDA) for four years. After that, the law limits the deduction to 30 percent of earnings before interest and taxes (EBIT).
Business Expensing: Full expensing of new and used capital investments is permitted for five years.
Corporate Alternative Minimum Tax: The corporate AMT is repealed.
Individual Alternative Minimum Tax: The individual AMT is increased to apply to individual filers earning more than $500,000 or joint filers earning $1 million.
Estate Tax: The exemption is doubled to estates worth $11 million for individuals, $22 million for couples. The exemptions would revert to current levels after 2025.
State and Local Tax Deduction: Taxpayers can deduct up to $10,000 of state and local taxes paid—property taxes and either income or sales taxes.
Mortgage Interest Deduction: The law preserves the deduction for existing mortgages and caps it at $750,000 for newly purchased homes starting Jan. 1, 2018.
Child Tax Credit: The child tax credit is increased to $2,000 per child with up to $1,400 of it being refundable.