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Summary of the Tax Cuts and Jobs Act

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Summary of the Tax Cuts and Jobs Act

Postby chicagotech » Fri Dec 22, 2017 11:27 am

* The Tax Cuts and Jobs Act would reduce taxes on average for all income groups in both 2018 and 2025. In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution.

* replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%).

* The new tax legislationmay boost US gross domestic product (GDP) 0.8 percent in 2018 and would have little effect on GDP in 2027 or 2037.

* The Tax Cuts and Jobs Act is the most sweeping update to the U.S. tax code in more than 30 years.

* The bill lowers corporate and individual tax rates, doubles the standard deduction, expands the child tax credit, and repeals the individual health care mandate.

* Marriage Penalty For High-Income Couples: the final TCJA tax brackets bring back the marriage penalty for upper income individuals, by making the top 37% tax bracket kick in at $500k for individuals, but “only” $600k for married couples.

* Simplified (And Lower) Tax Brackets For Estates And Trusts.

* Capital Gains And Qualified Dividends Retain Old Thresholds Under TCJA: those who fall in the 10% and 15% ordinary income brackets get 0% rates, while income in the 25%, 28%, 33%, or 35% brackets gets the 15% capital gains rate, and income in the top 39.6% bracket gets the 20% preferential rate.

* Merging Personal Exemptions Into An Expanded Standard Deduction: Under the new rules, the Standard Deduction will be $12,000 for individuals and $24,000 for married couples, as compared to just $6,350 for individuals and $12,700 for married couples under current law (in 2017).

* Expanded Child Tax Credit And Qualifying Dependent Credit: under the new rules, the Child Tax Credit is expanded from $1,000 per qualifying child under the age of 17 (the proposal to increase the age threshold to under-18 did not survive in the final legislation), up to a Child Tax Credit of $2,000 per qualifying child (of which $1,400 is a refundable credit for those whose net tax liabilities would be more than zeroed out by the credit).

* Limitations And Reforms To (Miscellaneous) Itemized Deductions.

* $10,000 Cap On State & Local Income Tax & Property Tax Deductions: households will be given the option to deduct their combined state and local property and income taxes, but only up to a cap of $10,000. The $10,000 limit applies for both individuals and married couples (an indirect marriage penalty for high-income couples), and is reduced to $5,000 for those who are married filing separately.

In addition, to prevent households from attempting to maximize their state and local tax deductions in 2017 (before the cap takes effect in 2018), the new rules explicitly stipulate that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017 (and instead will be treated as having been paid at the end of 2018). However, this restriction applies only to the prepayment of income taxes (not to property taxes), and applies only to actual 2018 tax liabilities, which means it is still permissible to pay 4th quarter 2017 estimated taxes by the end of 2017 (and not in early January of 2018) to obtain the 2017 deduction.

* Mortgage Deduction Limited To $750,000 Of Principal & No Home Equity Indebtedness.

* 529 Plans For Private Schools: After initial agreement on the “final” legislation, an adjustment due to the Byrd Rule resulted in the homeschooling provision being eliminated from the Tax Cuts and Jobs Act. As a result, only the expansion of 529 plan distributions for private elementary and secondary school expenses remains.)

* New “Qualified Business Income” 20% Deduction For Pass-Through Entities: The final legislation adopted the Senate version in a new IRC Section 199A, but adjusted the deduction to 20% (down from 23%) for so-called “Qualified Business Income” (QBI). Which means in practice pass-through businesses will be taxed on only 80% of their pass-through income (or alternatively, will effectively be taxed at only 80% of the normal tax bracket rate on all their business income).
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Re: Summary of the Tax Cuts and Jobs Act

Postby chicagotech » Fri Dec 22, 2017 11:37 am

With respect to individuals, the bill:
• replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%),
•increases the standard deduction,
• repeals the deduction for personal exemptions,
• establishes a 25% maximum rate on the business income of individuals,
• increases the child tax credit and establishes a new family tax credit,
• repeals the overall limitation on certain itemized deductions,
• limits the mortgage interest deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million),
•repeals the deduction for state and local income or sales taxes not paid or accrued in a trade or business,
• repeals the deduction for medical expenses,
• consolidates and repeals several education-related deductions and credits,
• repeals the alternative minimum tax, and
•repeals the estate and generation-skipping transfer taxes in six years.

For businesses, the bill:
•reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations),
• allows increased expensing of the costs of certain property,
• limits the deductibility of net interest expenses to 30% of the business's adjusted taxable income,
•repeals the work opportunity tax credit,
• terminates the exclusion for interest on private activity bonds,
• modifies or repeals various energy-related deductions and credits,
• modifies the taxation of foreign income, and
• imposes an excise tax on certain payments from domestic corporations to related foreign corporations.

The bill also repeals or modifies several additional credits and deductions for individuals and businesses.
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