As you may have read by now, the Tax Cuts and Jobs Act has passed the House (twice) and Senate. The legislation awaits now the signature of President Trump to sign into law.
Here is a recap of what the legislation will change:
For job creators of all sizes, the Tax Cuts and Jobs Act
• Lowers the corporate tax rate to 21% (beginning Jan. 1, 2018) – down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.
• Offering a first-ever 20% tax deduction that applies to the first $315,000 of joint income earned by all businesses organized as S corporations, partnerships, LLCs, and sole proprietorships. For Main Street job creators with income above this level, the bill generally provides a deduction for up to 20% on business profits – reducing their effective marginal tax rate to no more than 29.6%.
• Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing growth of jobs, productivity, and paychecks.
• Protects the ability of small businesses to write off interest on loans, helping these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks.
• Preserving the Research & Development Tax Credit that encourages our businesses and workers to develop cutting-edge “Made in America” products and services.
• Retaining the tax-preferred status of private-activity bonds that are used to finance valuable infrastructure projects.
• Eliminates the Corporate Alternative Minimum Tax, thereby lowering taxes and eliminating confusion and uncertainty so American job creators can focus on growing their business and hiring more workers, rather than on burdensome paperwork.
• Modernizes our international tax system
For individuals and families, the Tax Cuts and Jobs Act
• Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%
• Significantly increases the standard from $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
• Continues to allow people to write off the cost of state and local taxes – just like current law – up to $10,000. Gives individuals and families the ability to choose among sales, income and property taxes.
• Expanding the Child Tax Credit from $1,000 to $2,000 for single filers and married. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000. Parents must provide a child’s valid Social Security Number in order to receive this credit.
• Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.
• Preserving the Adoption Tax Credit so parents can continue to receive additional tax relief as they open their hearts and homes to an adopted child.
• Preserves the mortgage interest deduction
• For all homeowners with existing mortgages that were taken out to buy a home, there will be no change to the current mortgage interest deduction.
• For homeowners with new mortgages on a first or second home, the home mortgage interest deduction will be available up to $750,000.
• Provides relief for Americans with expensive medical bills by expanding the medical expense deduction for 2018 and 2019 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2020.
• Continues and expands the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization.
• Eliminates ACA’s individual mandate penalty
• Maintains the Earned Income Tax Credit
• Improves savings vehicles for education by allowing families to use 529 accounts to save for elementary, secondary and higher education.
• Provides support for graduate students by continuing to exempt the value of reduced tuition from taxes.
• Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts (IRAs)
• Increases the exemption amount from the Alternative Minimum Tax (AMT)
• Provides immediate relief from the Death Tax by doubling the amount of the current exemption to reduce uncertainty and costs for many family-owned farms and businesses when they pass down their life’s work to the next generation.