The Tax Cuts and Jobs Act PR PRESENTED B BY Y TOB OBY C CLARY, CPA PA, CVA VA Soukup, Bush & Associates
Contact Information ◦ TOBY@SOUKUPBUSH.COM ◦ 970-223-2727 Soukup, Bush & Associates
The Tax Cuts and Jobs Act: Affects on Individuals WHA HAT YOU N U NEED TO K KNOW I IN 20 2018 Soukup, Bush & Associates
The Tax Cuts and Jobs Act ◦ This is the largest tax reform in over three decades. Soukup, Bush & Associates
The Tax Cuts and Jobs Act ◦ For most Colorado taxpayers, this Act will cut their tax liability from 2% to as high as 15% . However, we have seen some projections where taxes will go up for some Colorado taxpayers Soukup, Bush & Associates
New Income Tax Rates & Brackets Current Income Tax Current New Income Brackets New Tax Rate Brackets (MFJ) Tax Rate (MFJ) $0 – $18,650 10% $0 – $19,050 10% $18,650 – $75,900 15% $19,050 – $77,400 12% $75,900 – $153,100 25% $77,400 – $165,000 22% $153,100 – $233,350 28% $165,000 – $315,000 24% $233,350 – $416,700 33% $315,000 – $400,000 32% $416,700 – $470,700 35% $400,00 – $600,000 35% Over $470,700 39.6% Over $600,000 37% These new rates are effective for tax years beginning after December 31, 2017 and before January 1, 2026. Soukup, Bush & Associates
New Standard Deductions Prior Standard New Standard Status Deduction Deduction Single/Married Filing Separately $6,350 $12,000 Head of Household $9,350 $18,000 Married Filing Jointly/Surviving $12,700 $24,000 Spouse ◦ Due to the increase in standard deductions, many of your regular itemized deductions may not be deductible on your tax return in 2018. Soukup, Bush & Associates
Grouping of Itemized Deductions – Updating tax planning. ◦ Most importantly – Individual tax planning will now include grouping itemized deductions in every other year for many taxpayers. ◦ What is Grouping? ◦ 2018: ◦ Prepay medical, property and income taxes, charitable for first half of 2019, ◦ 2019: ◦ Standard Deduction ◦ 2020: ◦ Pay 2020 property taxes and prepay 2021 property taxes, last half of 2019 contributions, 2020 contributions and first half of 2021 contributions. 2020 medical and prepay any others. Soukup, Bush & Associates
Charitable Contributions ◦ The new law makes the following changes to the deduction for charitable contributions for individuals: ◦ Increases the income-based percentage limitation to 60% (up from 50% for public charities and certain private foundations) ◦ Disallows the charitable deduction for payments made in exchange for college athletic event seating rights Soukup, Bush & Associates
Mortgage & Home Equity Indebtedness Interest Deduction ◦ Under the new law, the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 (for mortgages instated after December 15, 2017) through 2025. ◦ The new law also suspends the deduction for interest on home equity indebtedness for certain HELOCs, through 2025. Prior HELOCs are not grandfathered in Note: Binding contracts entered into during 2017, and refinances after year-end 2017 will not apply. Soukup, Bush & Associates
Alimony and Separate Maintenance Payments ◦ The new law makes the following changes to the individual taxation rules of alimony payments, effective for any divorce or separation instrument executed after December 31, 2018 . ◦ Alimony payments made by the payor spouse are not deductible . ◦ Alimony payments received by the receiving spouse are not includable in income . Soukup, Bush & Associates
Alimony and Separate Maintenance Payments ◦ NOTE : divorce agreements executed before December 31 , 2018 but modified after December 31, 2018 will be also subject to this new rule. Planning point: finalize or modify divorce or separation agreements by year-end 2018. Soukup, Bush & Associates
Child Tax Credit ◦ Under the new law, the child tax credit has been modified as follows, through 2025. ◦ Credit increased to $2,000 per qualifying child ◦ $1,400 refundable amount per qualifying child ◦ Provision to provide a $500 nonrefundable credit for qualifying dependents other than qualifying children ◦ Adjusted gross income phase-out amount increased to $400,000 for MFJ ($200,000 for all others). Note: dependent must have a SSN, not just a TIN. Soukup, Bush & Associates
Personal Residence Gain Exclusion ◦ Good news!! The personal residence gain exclusion has NOT BEEN MODIFIED . ◦ Taxpayers selling their principal residence can still exclude gain up to $500,000 (MFJ) or $250,000 (others) if they have lived in the residence for 2 of the last 5 years. Soukup, Bush & Associates
Alternative Minimum Tax ◦ Under the new law, the AMT exemption amounts are as follows: ◦ MFJ and Surviving Spouse: $109,400 ◦ Single: $70,300 ◦ MFS: $54,700 ◦ The phase-out amounts have also increased: ◦ MFJ and Surviving Spouse: $1,000,000 ◦ All others: $500,000 Soukup, Bush & Associates
Taxation of Business Income ◦ The new tax law considerably complicates the taxation of small business income for owners of such entities. ◦ We’ll dive right in… “It is estimated that the provision will affect over ten percent of small business tax returns…” – Conference Agreement Soukup, Bush & Associates
20% Qualified Business Income Deduction ◦ Qualified business, other than C-Corporations will get to deduct 20% of their Qualified Business Income, subject to two limitations, on their individual tax return ◦ They are not a Specified Service Business ◦ They have W-2 wage expense or capital investments Soukup, Bush & Associates
Specified Service Business Defined ◦ A specified service trade or business means any trade or business involving the performance of services in the fields of: ◦ Health ◦ Law Note: Engineers and Architects are not ◦ Consulting classified as specified service businesses ◦ Athletics ◦ Financial services ◦ Brokerage services ◦ Any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners ◦ Or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. Soukup, Bush & Associates
Taxation of Business Income Deduct from Owner’s Taxable Income** = 1 Plus 2 1. Lessor of A or B: A. Combined Qualified Business Income (I + II) (Income, gain, deductions, losses, including deduction for reasonable owner compensation) I. 20% of QBI, to not exceed wage limitation Plus Wage Limitation^^, Greater of: i. 50% of W-2 wages Plus II. 20% of Aggregate Qualified REIT ii. 25% of W-2 wages plus dividends & Qualified PTP income 2.5% of the unadjusted basis of qualified property B. [Owner’s Taxable Income – (Net Capital Gains + Qualified Cooperative Dividends)] x 20% 2. Lessor of C or D: C. 20% Qualified Cooperative Dividends D. (Owner’s Taxable Income – Net Capital Gains) ** NOTE: For specified service business, ^^ NOTE: Wage limitation is phased-in for owner’s with taxable income above $315,000 owner’s with taxable income above $315,000. (MFJ) will have this deduction phased-out. Phase-in is complete after $415,000. (Applies Phase-out is complete after $415,000. to ALL businesses, not just service).
Taxation of Business Income: Exclusion Phase-Out Clarification on exclusion phase-out for specified service businesses ◦ For specified service business, owners with taxable income above $315,000 (MFJ) will have this entire deduction phased-out. Phase-out is complete after $415,000. ◦ In other words, if an owner of a specified service business has taxable income under $315,000, they will get the full benefit of this new deduction. Soukup, Bush & Associates
Taxation of Business Income: Wage Limitation Phase-In Clarification on phase-in for wage limitation ◦ For ALL business entities, the wage limitation is phased-in for owner’s with taxable income above $315,000. Phase-in is complete after $415,000. ◦ In other words, if an owner has taxable income under $315,000, they will not be subject to the wage limitation. Soukup, Bush & Associates
Other Changes of the New Law ◦ Suspension of the deduction for personal exemptions. ◦ Suspension of the deduction for personal casualty and theft losses, except in disaster relief areas declared by the President. ◦ Repeal of overall limitation on itemized deductions. Soukup, Bush & Associates
Other Changes of the New Law (cont.) ◦ Section 529 plans to allow distributions ($10,000 or less per student) for tuition incurred in connection with the enrollment or attendance at a public, private or religious elementary or secondary school. ◦ Recharacterization to unwind a Roth IRA conversion/rollover no longer allowed. Soukup, Bush & Associates
Other Changes of the New Law (cont.) ◦ Wagering (gambling) losses definition to include expenses incurred in carrying out wagering transactions (such as travel to or from a casino). ◦ Suspension of the deduction for moving expenses. ◦ Qualified tuition programs (529 Plans) can be rolled over to ABLE accounts without penalty, within the same family. Soukup, Bush & Associates
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