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Overview of the U.S. Tax Cuts and Jobs Act

Congress approved major tax reform in the Tax Cuts and Jobs Act, signed into law on December 22, 2017. This legislation, which affects both individuals and businesses, is commonly referred to as TCJA or the 2017 tax reform legislation.

The IRS estimates that we will need to create or revise more than 400 taxpayer forms, instructions and publications for the filing season starting in 2019. It’s more than double the number of forms we would create or revise in a typical year.

The IRS collaborates with the tax professional community, industry, and tax software partners each year as we

implement changes to the tax law, including the Tax Cuts and Jobs Act, to ensure that the taxpayer has information about how the law applies to your particular situation and you are prepared to file. 

This electronic publication covers many of the TCJA provisions that are important for small and medium-sized businesses, their owners and tax professionals to understand. Businesses affected by TCJA include corporations, S corporations, partnerships (including limited liability companies or LLCs) and sole proprietorships.

Changes to deductions, depreciation, expensing, credits, fringe benefits and other items may affect your business tax liability and your bottom line. It’s important to consider the business structure and accounting methods when applying tax reform to the situation. 

U.S. Tax Reform Provisions that Affect Individuals

Changes in Tax Rates

For 2018, most tax rates have been reduced. This means most people will pay less tax starting this year. The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

In addition, for 2018, the tax rates and brackets for the unearned income of a child have changed and are no longer affected by the tax situation of the child’s parents. The new tax rates applicable to a child’s unearned income of more than $2,550 are 24%, 35%, and 37%.

In addition to lowering the tax rates, some of the changes in the law that affect you and your family include increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, and limiting or discontinuing certain deductions.

Most of the changes in this legislation take effect in 2018 for federal tax returns filed in 2019. It is important that individual taxpayers consider what the TCJA means and make adjustments in 2018 and 2019. 

Federal income tax withholding may need adjustment

The Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income.

The IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed. This issue affects every taxpayer who receives a paycheck.

The U.S. tax system operates on a pay-as-you-go basis. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two.

Changes to Standard Deduction

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status.

The standard deduction reduces the income subject to tax. The Tax Cuts and Jobs Act nearly doubled standard deductions. When you take the standard deduction, you can’t itemize deductions for mortgage interest, state taxes and charitable deductions on Schedule A, Itemized Deductions.

Starting in 2018, the standard deduction for each filing status is:

  • Single....................................................................$12,000 .......(up from $6,350 in 2017)
  • Married filing jointly. Qualifying widow(er) .........$24,000 .......(up from $12,700 in 2017)
  • Married filing separately .......................................$12,000 .......(up from $6,350 in 2017)
  • Head of household...............................................$18,000 .......(up from $9,350 in 2017)
  • The amounts are higher if you or your spouse are blind or over age 65.

Most taxpayers have the choice of either taking a standard deduction or itemizing. If you qualify for the standard deduction and your standard deduction is more than your total itemized deductions, you should claim the standard deduction in most cases and don’t need to file a Schedule A, Itemized Deductions, with your tax return. 

Changes to Itemized Deductions

In addition to nearly doubling standard deductions, the Tax Cuts and Jobs Act changed several itemized deductions that can be claimed on Schedule A, Itemized Deductions.

For 2018, the following changes have been made to itemized deductions that can be claimed on Schedule A.

  • Limit on overall itemized deductions suspended
  • Deduction for medical and dental expenses modified
  • Deduction for state and local income, sales and property taxes modified
  • Deduction for home mortgage and home equity interest modified
  • New dollar limit on total qualified residence loan balance
  • Limit for charitable contributions modified
  • Deduction for casualty and theft losses modified
  • Miscellaneous itemized deductions suspended

U.S. Tax Reform Provisions that Affect BUSINESS

Corporate Tax Provisions 

  • Corporate Tax Rate: The TCJA lowers the corporate tax rate to a flat 21 percent of taxable income for tax years beginning after December 31, 2017. 
  • Corporate Alternative Minimum Tax:  TCJA repeals the corporate alternative minimum tax (AMT) for years beginning after December 31, 2017. 
  • Credit for Prior Year Minimum Tax:  The Credit for Prior Year Minimum Tax Liability of Corporations allows a refundable credit to offset a taxpayer’s tax liability for tax years beginning after 2017 and before 2022. 

Qualified Business Income Deduction 

Depreciation: Sections 168 and 179 Modifications 

Business Related Losses

Business Related Exclusions and Deductions

Business Credits

S Corporations 

US & Canada Tax - Lily Lo CPA Professional Corporation - Edmonton, Alberta

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