How Tax Reform Impacts Individuals and Businesses

Tax Reform, Tax Cuts and Jobs Act
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On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. This act will reform both individual income and corporate income taxes, and will reduce marginal tax rates on labor and investment. These changes began in 2018 and some are set to expire in 2025. We want to make sure to give you the basics of these changes and how they will impact you and your business.

Some of the individual income tax changes are:
  • Lowers most individual income tax rates, including the top marginal rate from 39.6 percent to 37 percent
  • Eliminates the personal exemption
  • Increases the standard deduction for married individuals filing a joint return to $24,000, or head-of-household filers it increases to $18,000, and for all other taxpayers it increases to $12,000, this is another temporary change
  • Modifies the child tax credit to temporarily increase the credit to $2,000 ($1,000 under current law) per qualifying child under the age of 17
  • Retains the charitable contribution deduction, and limits the mortgage interest deduction to the first $750,000 in principal value
  • Indexes tax brackets and other provisions by the chained CPI measure of inflation
The full document of the act contains all of the changes but these are some of the most notable changes to individual income tax. Next we will highlight some of the most notable corporate income tax changes.
Some of the corporate income tax changes are:
  • Lowers the corporate income tax rate from a max of 35% to a permanent, flat rate of 21%
  • Increases the maximum amount a taxpayer may expense per year from $500,000 to $1 million, according to section 179
  • Net operating loss deduction modified to limit deduction of taxable income to 80% with the few exceptions
  • Corporate alternative minimum tax is eliminated
  • Individual taxpayers with a small business or partnership may temporarily deduct 20% of qualified business income
  • Changes our system to a more territorial one with base erosion rules
In order to learn how the changes will directly impact you, use the tax reform calculator from the Tax Foundation. Make sure to also check out Notice 1036 which has been released by the IRS to reflect changes to income-tax withholding for 2018. Again, this is not a full comprehensive review on the Tax Cuts and Jobs Act but we hope to highlight the changes that will most directly impact you and help you to stay up to date in order to keep your life, and business, running smoothly.