Below are some new rules in a variety of areas that will take place in 2018 if congress votes them in and the president signs them into law. It is all expected to be decided before the Christmas.
· Standard deduction increased. Going from $6,500 for single individuals and married individuals filing separately; $9,550 for heads of household, and $13,000 for married individuals filing jointly to $12,000, $18,000, and $24,000 respectively.
· Personal Exemption suspended. Formally, personal exemption of 4,150 each was allowed for the taxpayer, the taxpayer’s spouse, and any dependents. Now, no exemptions are allowed.
· Lower tax brackets. The tax rates are generally lower and the thresholds higher.
· Kiddie Tax modified. Instead of being added to the parents’ income, the unearned income of dependent minors is now taxed at trust rates.
· Personal casualty loss deduction suspended. A deduction is still allowed in the case of a Federally-declared disaster area.
· Child Tax Credit doubled. The child tax credit in increased from $1,000 to $2,000. The phase-out is increased to $400,000 if MFJ and $200,000 otherwise.
· Limit on State and Local tax deduction. Taxpayer may claim a maximum itemized deduction of $10,000 on the aggregate of all state and local property and income (or sales) taxes.
· Mortgage interest limits. The deduction for interest on home equity indebtedness is eliminated. The limit on acquisition indebtedness is lowered from $1,000,000 to $750,000.
· Alimony deduction eliminated. For separation agreements executed after December 31st, 2018 alimony is not deductible for the payor and is not income to the payee.
· Miscellaneous Itemized Deductions suspended.
· Moving expense reimbursement exclusion suspended.
· Individual mandate repealed. Starting 12/31/2018 there is no penalty for failure to meet minimum health insurance requirements. Net investment and high income taxes remain in place.
· Estate and Gift tax threshold increased. The lifetime exemption is increased from $5,000,000 to $10,000,000
· AMT exemption increased. The AMT exemption is increasing from $86,200 for MFJ and $55,400 single to $109,400 MFJ and $70,300 single.
· New Deduction for Qualified Business Income. 20% deduction on Qualified Business Income (QBI) from sole proprietorships and pass-through entities. Deduction is limited to 50% of W-2 wages or 25% of W-2 wages plus 2.5% of the unadjusted basis of the tangible, depreciable property held for use in the qualified trade or business. This appears to make rental real estate eligible for the deduction.
· QBI Limitation for a Service-Based Business. The 20% QBI deduction for service based income is only allowed for taxpayers with an AGI less than $315,000 MFJ or $157,500 for other fillers. Service-based businesses are defined as the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees. Engineering and Architecture are excluded from this limitation.
· Corporate income tax rate is a flat 21%
· AMT repealed
· Section 179 Limit increased to $1,000,000
· Bonus deprecation increased to 100%
· Qualified improvements subject to 15 year straight-line depreciation. A qualified improvement is an improvement to the interior of a nonresidential building that it not related to an elevator, escalator, internal framework of the building, or an enlargement of the structure.
· The deduction for business interest is limited to 30% of taxable income. This provision does not apply to taxpayers with average gross receipts of less than $25,000,000.
· NOL Limitation. For losses occurring after 12/31/2017 the NOL deduction is limited to 80% of taxable income. NOLs may no longer be carryback back, but can be carried forward indefinitely.
· DPAD (a 9% income deduction for manufacturing businesses) repealed
· Like-Kind Exchange limits. Sec.1031 exchanges only allowed on the exchange of real property not held for sale.
· Entertainment deduction repealed. Meals deduction remains in place.
· Exceptions to compensation limit repealed. Formally, stock options, commissions, and performance-based pay were not subject to the $1,000,000 deduction limitation executive compensation. These exclusions have been repealed.
· Cash Method. The gross receipts threshold to use the cash method of accounting is increasing from $5,000,000 to $25,000,000 (of average gross receipts in the previous three years).
· Inventory Accounting. The gross receipt threshold to account for inventory is increasing from $1,000,000 to $25,000,000. Additionally, taxpayers below the threshold do not have to capitalize direct and indirect manufacturing costs.
· Foreign Dividends Deduction. A US Corporation that is a US shareholder of a foreign corporation receives a 100% deduction on the foreign-source portion of any dividends received.
· Stock Dividends. Stock dividends from CFCs are now treated as Subpart F income and subject to income tax.
· US Shareholder redefined. Under the former CFC rules a US shareholder was a US person who owned 10% or more of the combined voting power of a foreign corporation. This has been changed to 10% or more of the total value of all stock.
The Work Opportunity Tax Credit (WOTC) is a federal tax credit for employers that hire employees from the following targeted groups of individuals:
The tax credit (a maximum of $9,600) is taken as a general business credit on Form 3800 and is applied against tax liability on business income. It is limited to the amount of the business income tax liability or social security tax owed. Normal carry-back and carry-forward rules apply.
For qualified tax-exempt organizations, the credit is limited to the amount of employer social security tax owed on wages paid to all employees for the period the credit is claimed.
Also, an employer must obtain certification that an individual is a member of the targeted group before the employer may claim the credit.
Unique Opportunity: Usually, certification with a local Employment Development Department is necessary within 28 days from the date of hire. However, this rather short and strict period is being waived for 2015 and a part of 2016. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020. Now that WOTC has been reauthorized for 5 years, retroactively from January 1, 2015 through December 31, 2019 we have another transitional relief period. *Applications with hire date of January 1, 2015 through August 31, 2016 will have until September 29, 2016 to submit all certification requests.
For tax-exempt employers, the PATH Act retroactively allows them to claim the WOTC for qualified veterans who begin work for the employer after December 31, 2014, and before January 1, 2020.