New Tax Law 2021

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.    

• The top tax bracket is 37%.
• Standard deductions: $12,550 for individuals, $18,800 for head of household, and $25,100 for married filing jointly. 
• 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• Several itemized deductions are repealed, including unreimbursed employee expenses, tax preparation fees, contingency fees for a taxable legal award, expenses from a taxable hobby, and financial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 still 0.
• Child tax credit is still $3,000/child. The credit is also fully refundable. The additional child tax credit, which acted as a refundable child credit, is repealed and replaced by the new refundable portion of the credit.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 $1,047,200 for married filing jointly, and $523,600 for all other taxpayers.
• Individual Shared Responsibility Payment (Obamacare Penalty) is eliminated.
• Alimony payments deduction eliminated for divorce agreements dated after 2018.
• Exemption threshold for individuals subject to the estate tax grows to $23,400,000 for married filing jointly, and $11,700,000 for all other taxpayers.
• Net operating loss deduction is limited to 80% of taxable income.   
• Roth IRA conversions cannot be undone.

• 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• The 50% deduction for entertainment expenses is repealed.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.