President Trump signed the “Tax Cuts and Jobs Act” (TCJA) into law on December 22, 2017. The act represented the most comprehensive change to the tax code since President Reagan’s Tax Reform Act of 1986. Under the new act, some tax code provisions were eliminated or simplified while several new rules were added.
Deductions and Exemptions:
In order to provide revenue to offset the decrease in marginal rates, many popular itemized deductions were scaled back or eliminated (i.e. mortgage interest, state & local income taxes, medical expenses, miscellaneous deductions and moving expenses). The personal exemption was repealed. However, the standard deduction was nearly doubled (from $6,500 to $12,000 for individuals and from $13,000 to $24,000 for married couples). With this higher standard deduction, it is estimated that less than 10% of taxpayers will itemize deductions (down from 30%).
Most businesses in the United States are structured as pass-through entities such as S Corp’s. LLC’s, partnerships or sole proprietorships. While marginal tax rates for individuals and married couples come with a maximum of 37%, business owners with a pass-through entity will benefit from a new 20% deduction of qualified business income (QBI). Most service businesses qualify for this credit.
With significant changes across most tax rules, individual investors as well as business owners may want to consider the importance of seeking professional advice in developing and evaluating their financial plans.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.