How does the new tax bill impact you and your business? While there are many details included in the new bill that will drive how you plan for your 2018 taxes, we will attempt to highlight some of the major changes:

 The bill does not affect 2017 taxes. According to the IRS, updated withholding guidance will be issued in January or February, so the earliest anyone will see changes reflected on a paycheck will be February.

 Business Highlights

  1. Significantly lowers the corporate tax rate: Cuts the corporate rate to 21% beginning in 2018 and repeals the alternative minimum tax on corporations.
  2. Lowers taxes on pass-through businesses: Owners, partners and shareholders of S-corporations, LLCs and partnerships will receive a 20% deduction on non-W-2 business earnings. The 20% deduction is not applicable for anyone in a service business - unless their taxable income is less than $315,000 (married) or $157,500 (single).
  3. Changes how U.S. multinationals are taxed: Instead of all earnings being subject to tax, regardless of the country in which they are earned, the bill changes multi-national taxation to a territorial system.

Individual Highlights

  1. New tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%; (Existing brackets are: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%); Here is a breakdown of the new brackets:
  • 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly) 
  • 12% ($9,525 to $38,700; $19,050 to $77,400 for couples) 
  • 22% ($38,700 to $82,500; $77,400 to $165,000 for couples) 
  • 24% ($82,500 to $157,500; $165,000 to $315,000 for couples) 
  • 32% ($157,500 to $200,000; $315,000 to $400,000 for couples) 
  • 35% ($200,000 to $500,000; $400,000 to $600,000 for couples) 
  • 37% (over $500,000; over $600,000 for couples)
  1. Increase to the standard deduction:  For single filers, it will increase to $12,000 from $6,350 currently; for married couples filing jointly it will increase to $24,000 from $12,700.
  2. Elimination of personal exemptions: Currently you can claim a $4,050 personal exemption for yourself, your spouse and each of your dependents. These will disappear in 2018.
  3. Limit to state and local tax deduction: State and local tax deductions for those who itemize will still be permitted, but the most than can be deducted will be $10,000. Currently, the deduction is unlimited for state and local property taxes, as well as income and sales taxes.
  4. Increase to the child tax credit: The credit would be doubled to $2,000 for children under 17. The income levels at which the credit can be claimed are raising as well, so more people will be receiving the credit.
  5. Increases the amount of money exempt from the estate taxalmost all estates are already exempt from this tax.
  6. The healthcare mandate and penalty will be repealed starting in 2019. As a result, something that individuals and small businesses will need to plan for and keep an eye on will be increased health care premiums. It is likely that consumers will experience steep increases in the next few years. Plan choices will continue to decrease, while the costs for them will rise, due to younger, healthier people no longer being required to purchase insurance.

Again, these are just some of the changes. We will post updates throughout 2018 about specific changes to the tax code. For more information, or to learn how these changes may impact you, please contact us anytime at 302-798-3300 or cpa@bumpersco.com.