Schmidt, Koning, Villarreal & Associates, LLC
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Member: American Institute of Certified Public Accountants
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Congress passed Public Law No. 115-97, or the Tax Cuts and Jobs Act, on December 22, 2017. It is the most significant change in the Internal Revenue Code in decades.

2018 Individual Tax Updates

  • Tax brackets decreased across the board. The top rate dropped from 39.6% to 37%.
  • Standard deductions nearly doubled: $12,000 for individuals, $18,000 for head of household, and $24,000 for married filing jointly. The expanded standard deduction encourages fewer taxpayers to itemize deductions.
  • State and local deductions are limited. Between income tax, sales tax, and property tax, taxpayers cannot deduct more than $10,000 total.
  • Several itemized deductions are repealed, including unreimbursed employee expenses, tax preparation fees, contingency fees for a taxable legal award, expenses from a taxable hobby, and financial advisory fees.
  • Personal exemptions are repealed.
  • Child tax credit is expanded from $1,000/child to $2,000/child. The credit is also refundable up to $1,400/child. The additional child tax credit, which acted as a refundable child credit, is repealed and replaced by the new refundable portion of the credit.
  • §529 accounts are amended to allow for up to $10,000 in tuition per student in primary or secondary schooling. Previously, they could only cover higher education.
  • Exemption threshold for individuals subject to the Alternative Minimum Tax grows to $1,000,000 for married filing jointly, and $500,000 for all other taxpayers.
  • Individual Shared Responsibility Payment (Obamacare Penalty) is eliminated.
  • Alimony deduction eliminated for divorce agreements after 2018 is eliminated.
  • Exemption threshold for individuals subject to the estate tax grows to $22,400,000 for married filing jointly, and $11,200,000 for all other taxpayers.
  • Net operating loss deduction is limited to 80% of taxable income.
  • Roth IRA conversions cannot be undone.

 

2018 Corporate/Business Tax Updates

  • Corporate tax brackets collapse into one flat rate of 21%.
  • Alternative Minimum Tax no longer applies to corporations.
  • Companies with gross receipts under $25,000,000 do not have to account for inventory or use the accrual basis of accounting. The former threshold was $5,000,000.
  • The 50% deduction for entertainment expenses is repealed.
  • The new §199A deduction grants a 20% deduction against pass-thru income. Limitations phase in if the taxpayer’s taxable income for the year exceeds $315,000 for married filing jointly, or $157,500 for all other taxpayers. Read more about the §199A deduction here.