Robert Loe CPA

Comparison, New and Old Tax Law

As we enter the new year, there are several new tax situations to make note of. Some of these affect us immediately while others will have more implications down the road. A couple of items to consider this year are the new tax rates (the tax brackets are adjusted each year to attempt at keeping up with inflation), and the new tax bill that has been created. You can find the 2018 tax rates HERE on our website. However, the main focus of our post today is to get the initial general information regarding the current tax bill out there. You can find the full bill HERE. We would normally try to bring the documents to you here in order to make it easier to access but the new bill is about 185 pages and we believe that each page will have pertinent information until we can pare it down to the important bullet point. Please don’t hesitate to contact us if you have questions regarding the new bill. We will try to answer as many of the questions as we can but for the time being, the bill is so new that some of the portions are still being interpreted by other professionals. Below you can find a brief comparison between current law and the new bill that was posted by the New York Times. For the full original article, click here.

Tax brackets Seven Seven, lower over all
Top rate 39.6% 37%
starts at: $426,700 / $480,050
$500,000 / $600,000 (singles/couples)
Alternative Minimum Tax Alternative income tax calculation for high-income taxpayers Keeps, but increases exemption so fewer will pay it
Standard deduction and exemptions
Standard deduction $6,500 / $13,000
$12,000 / $24,000 (singles/couples)
Personal exemptions $4,150 per taxpayer and dependent Eliminates
Family tax credits
Child tax credit $1,000 $2,000
Refundable portion: 15% of earnings over $3,000 Up to $1,400
Credit for other dependents None $500
Family tax credits phase out starting at: $75,000 / $110,000
$200,000 / $400,000
Inflation measure used for certain income thresholds Consumer Price Index (CPI) Chained CPI (C-CPI), a less generous measure
Education credits American Opportunity Tax Credit, Lifetime Learning Credit and Hope Scholarship Credit No change
Student loan interest deduction Can deduct up to $2,500 No change
Graduate student tuition waivers Tuition waivers are not treated as taxable income No change
Education savings plans None Expands use of 529 college savings accounts to include K-12 private school tuition
Deduction for classroom expenses $250 deduction No change
Itemized deductions
State and local

tax deduction

Income or sales and property taxes are deductible All state and local tax deductions limited to $10,000

interest deduction

Can deduct interest payments on up to $1 million of debt Limited to payments on $750,000 of debt
Moving expenses Can deduct personal expenses Eliminates, except for members of the military
Employer-provided expense reimbursements are excluded Eliminates, except for members of the military
Medical expenses deduction Can deduct out-of-pocket expenses in excess of 10% of adjusted gross income Expands by reducing threshold to 7.5% of incomeApplies to 2017 and 2018
Overall limit on itemized deductions Phase out beginning at $266,700 / $320,000
Other individual taxes
Individual mandate Penalty for not having health insurance EliminatesStarts in 2019
Estate tax Top rate of 40% on estates above $5.6 million Increases threshold to estates above $11.2 million
Pass-through income Taxed at individual rates 20% deduction, phasing out starting at $315,000 of income for couples
Capital gains Top rate of 23.8% (including net investment income tax) No change
Corporate taxes
Top corporate tax rate 35% 21%
Business interest deduction Generally fully deductible Caps deduction at 30% of income (excluding depreciation)
Alternative Minimum Tax Alternative income tax calculation for businesses Eliminates
New investment purchases Complex rules for deducting over many years Five years of full expensing, then phased out over five more years
Section 179 expensing Small business expensing limited to $500,000 Increases limit to $1 million
Net operating losses Can deduct net operating losses from income in other years Limits the deduction to 80% of taxable income
Research and development expenditures Can be immediately deducted Would need to be written off gradually
Business credits and other
Orphan drug tax credit Credit for 50% of qualified testing expenses Reduces credit rate to 25%
Renewable electricity tax credit Credit for wind power production, phasing out by 2020 No change
Private activity bonds Tax-exempt bonds used to fund low-income housing and other projects No change
Taxation of multinational companies Worldwide system with deferral and credit for taxes paid abroad Modified territorial system with new anti-abuse tax
One-time repatriation tax 8% (15.5% for cash)
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