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Tax Reform Update

The proposed tax reform legislation is about to become law.  We will have more information as more information and guidance is released about the provisions of the tax reform.  The bulk of the tax cuts is a major reduction in corporate taxes from 35% to 21% and the elimination of the business Alternative Minimum Tax.  Service based small businesses, however, may not get the benefit of the business tax cut if their owners’ individual income exceeds certain thresholds.  And businesses that don’t pay wages may not benefit from the changes.

The changes for individuals and couples, most of which are temporary until 2025, include:

  • Slight reduction in tax rates for most taxpayers
  • Reduced impact from the Alternative Minimum Tax
  • Expanded Child Tax Credit
  • Elimination of the reduction in deductions based on income levels
  • Elimination of the estate tax for couples with more than $11 million and less than $22 million
  • Reduction of the 10% threshold for medical expense deductions to 7.5% (for 2017 and 2018 only)
  • Reversal of alimony taxation for post-2018 divorces (non-taxable to recipient, and non-deductible by payer)
  • New limit of $10,000 on the combined state income tax and property tax deduction (regardless of whether filing as single or married)
  • Elimination of the miscellaneous itemized deductions (investment management fees, tax prep, unreimbursed business expenses such as home office and mileage)
  • Slowing of the adjustment to tax brackets to account for inflation
  • Elimination of the requirement to have health insurance starting in 2019
  • Limit on the deductibility of mortgage interest to $750,000 of debt for post-2017 mortgages
  • Elimination of the deductibility of interest on any home equity loan not used to buy or remodel the home
  • Major unreimbursed losses are only deductible if attributable to a declared national disaster (example of loss could be fire or flood damage to your home)
  • Elimination of deduction for moving expenses
  • Elimination of deduction for business entertainment expenses
  • Acceleration of taxation of deferred compensation

We will be communicating to clients after  we analyze the implications.