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The “Tax Cuts and Jobs Act,” which was passed by Congress in December, 2017, made significant changes to individual, business and estate taxes, and became effective as of January 1, 2018.  While the business related provisions are considered permanent, the individual and estate tax provisions only remain in effect until December 31, 2025, when they are subject to a “sunset” and will revert back to 2017 law. 

Here are a few of the major changes that could impact you and your business in the coming year:

Individual Taxes

  • There are still seven tax brackets, but the rates have changed to 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
  • The standard deduction increased to $12,000 for Single taxpayers, $18,000 for Head of Household and $24,000 for Married Filing Jointly.
  • Personal exemptions are eliminated.
  • Itemized deductions for state and local taxes and mortgage interest are limited; the deduction for miscellaneous itemized deductions (subject to the 2% of AGI) is eliminated.
  • Taxpayers who receive pass-through business income from sole proprietorships, partnerships, S corps and LLCs electing to be taxed as a partnership or S corp may receive a 20% deduction, which essentially reduces the top marginal rate to 29.6%.  Owners of certain types of pass-through service businesses are subject to income limitations and may not be eligible for the deduction.

Estate Taxes

  • The estate and gift tax exclusion amount is increased from $5 million to $10 million per person.  Indexed for inflation, this amount is $11.2 million per person in 2018 ($22.4 million per married couple).
  • The annual gift tax exclusion increased from $14,000 to $15,000.

Business Taxes

  • The corporate tax rate is reduced to a flat 21%.
  • The corporate Alternative Minimum tax (AMT) is repealed.
  • The amount that can be expensed in the current year under Code §179 (rather than depreciated over time) increased to $1 million.
  • Deductions for business-related entertainment expenses and employee transportation fringe benefits are eliminated. 

These changes bring a wide range of both questions and opportunities for business owners.  “Is my business is better off being a pass through entity (like an S corp or LLC) or a C corp?”  “Do the potential tax savings to my business this year support an increase in wages for my employees?”  “Are there increased opportunities for implementing employee retention strategies (like a Private Bonus or Split Dollar plan)?”  Talk to your attorney and/or CPA for information about how the Tax Act might impact you and your business based on your individual situation.