The “Tax Cuts and Jobs Act” was approved by Congress and went into effect on January 1, 2018 making significant changes to business tax and personal income tax starting with the 2018 tax year.
For businesses, the maximum corporate tax rate for C corporations was cut from a previous maximum of 35% to a new maximum rate of 21%. For pass-through entities, such as S corporations and limited liability companies, a new 20% deduction applies to an owner’s allocable share of income, after which a reduced rate of 29.6% is applied. This benefit phases out starting at $315,000.
For personal income tax, the number of income tax brackets remains at seven, but the income ranges in several brackets have changed and each new bracket has a lower tax rate. On average each tax bracket’s tax rate has dropped approximately 2%.
The standard deduction has gone from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single filers. Meanwhile, miscellaneous itemized deductions, such as tax preparation fees, investment expenses, and unreimbursed employee expenses are eliminated. The personal exemption has also been eliminated, which was a deduction of $4,150 per taxpayer and dependent. The child tax credit is doubled from $1,000 to $2,000, $1,400 of which will be refundable.
Importantly, these changes are not permanent. They are set to expire in 2025. So, more than ever, we recommend consulting with an accountant for your business and personal income tax planning while these changes are in effect.
For more information, contact Kari Thames with Tax Resolution Specialists at (616) 458-4700 or firstname.lastname@example.org.