This is the first of a series of blogs addressing the Tax Cuts and Jobs Act (The Act) enacted on 12/22/2017. The Act is a very comprehensive act. It addresses tax issues that effect every taxable entity.
Every time we get a new President, we get a tax reform action. In short, this action appears to be a combination of the Reagan tax reforms and the Carter tax reforms.
The Reagan program primarily affected individuals. The Carter program was more business stimulation oriented. which raised the standard deductions.
As in all Federal legislation there are always exceptions, but in general terms individual taxation will be simplified for a huge number of Americans. The prevailing estimate is that 30 of the 44 million individuals will now be able to file using the standard deduction. In other words, the over whelming number of filers will file their annual tax return on a 1040EZ. The EZ is not a “post card”, but it is darn close. Everyone in this group will probably be considered “winners’. Those individuals falling outside this area will fall into two groups….Winners and Losers. Unlike what you may have read, these winners and losers will be determined not by total income but more by where that income was derived from. Or, said another way, each return will be unique.
For non-individual tax entities, there were also changes. One change that we really applaud was the increase in the exclusion for Estates, Gifts and other transfer taxes. The current exclusion is $5,000,000. The new base line is $10,000,000.
Big time real estate developers and investors received incentives as did regular corporations. Accelerated depreciation is still in effect at higher levels. Section 179 depreciation is raised to $1 million. In addition, the assets that are eligible for Section 179 was increased. Depreciation for luxury autos was increased. Credits for wages are available. Regular C corporations get a flat tax rate of 21%, down from 35%.
These are just a few of the changes. Over the next few weeks we take a more in-depth view of the changes. So stay tuned.