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Summing It Up

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Lindsey Miller

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Historic Tax Reform Bill Will Benefit Many Companies

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Author: Lindsey Miller

There’s no secret that the new tax plan approved by Congress and sent to President Trump is very generous to many different types of companies and industries, including those that have foreign income producing activity.

In 2018, both small and large businesses will see significant change to their tax situation, and will need to do planning early in the year to maximize tax benefits throughout the year.

Key Changes in the New Tax Plan for Companies

The 500-page bill includes the following key changes for US based companies with domestic and foreign operations:

1. Corporate tax rate     

  1. Cut from 35% to 21%
  2. Repeals the corporate AMT

Freed Maxick Insights

With the new rate beginning in 2018, it gives corporations very little time to push through deductions at the higher rate. With such a drastic decrease to the corporate rate (40%), it could result in pass-through entities converting to C corporations.

2. Pass Through businesses   

  1. Establishes a 20% deduction of certain business income, but deductions are limited once the income reaches $157,500 for singles and $315,000 for joint. 

Freed Maxick Insights

As mentioned above, it is possible to see pass-through businesses convert to C corporations with the new corporate tax rate.

But be careful, this provision does not apply to all pass through businesses. Certain specified service trade or businesses are excluded.

 

3. Deductions and Credit

  1. Numerous deduction and credits eliminated including Domestic Production Activities, non-         real property like kind exchanges and others
  2. Research and development expenses are now amortized over five years, beginning in 2023
  3. Rehabilitation credit remain but have been modified
  4. Interest expenses limited to 30% of modified taxable income number 

Freed Maxick Insights

With a 40% decrease in the corporate tax rate, the effect of losing these deductions or credits could increase your effective tax rate. Tax credits are still available, so if your business largely relies on tax credits, it will be important to understand the impact and what remains. 

 

4. Bonus Depreciation

  1. Increased from 50% to 100% deduction of costs of depreciable assets can be taken in one year but equipment must be purchased after September 27, 2017, and before January 1, 2023

Freed Maxick Insights

This will be a huge planning opportunity for many businesses; with no taxable income limitation on bonus depreciation (unlike Section 179 expensing), businesses will be able to take advantage of fully expensing acquisitions (new or used!) in the year placed in service.

 

5. International Tax

  1. Current "worldwide" tax system changed to a territorial system where corporations will not         be taxed on foreign profit
  2. Companies can repatriate cash held overseas by paying a one-time mandatory tax, based on foreign earnings and, at a tax rate of 15.5% on cash and 8% on property 

Freed Maxick Insights

With the new tax on deemed repatriation, it may be great time for businesses to bring money back and invest in the U.S.

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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Congress Passes Historic Tax Reform Bill

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Author: Lindsey Miller

After months of debate, acrimony and drama, the US Congress passed the Tax Cuts and Jobs Act, and sent it to President Trump for signature.

Starting January 1, 2018, many individual taxpayers will see significant change in how they plan and prepare their taxes.

 

Key Changes in the New Tax Plan for individuals

The 500-page bill includes the following key changes for individual taxpayers and their families:

1. Seven tax brackets remain, but income taxes cut
  1.   Rate changes expire in 2025, unless extended by congress
  2.   Look for initial withholding guidance from the IRS in January
  3.   Indexed for inflation by a chained CPI

Freed Maxick Insights

This will give rise to many planning opportunities in the year before the new brackets expire. In addition, with the new brackets taking effect in 2018, it does not allow much time for pre-change planning.

2. Standard deduction

  1.   Nearly doubled
  2.   Indexed for inflation by chained CPI
  3.   Personal exemptions eliminated

Freed Maxick Insights

With some itemized deductions being eliminated or limited, there will be an increase in the amount of taxpayers taking the standard deduction. However, the increase to the standard deduction amount will most benefit those taxpayers who have not itemized in the past.

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3. Other Itemized Deductions
  1.   Mortgage interest deduction remains, but is modified
  2.   State and local tax deduction is limited to $10,000, may choose to include sales taxes as an alternative. Congress also acted to prevent pre-payment of taxes to avoid future limitations
  3.   Medical expenses deductions temporarily enhanced by lowering the threshold to 7.5% of AGI in the 2018 and 2019 tax years
  4.  Alimony no longer tax deductible and the associated income is no longer taxable

Freed Maxick Insights

It was originally thought that the state and local income tax deduction would be completely eliminated. While that did not end up being the case, it is worth it to note that the $10,000 limit includes both income and property taxes. Therefore, this provision will still severely limit the itemized deductions of many taxpayers. But don’t consider prepaying your 2018 state income taxes in 2017. Those amounts will not be deductible until 2018.

 

4. Alimony

     a. For divorce or separation decrees after 2018, alimony is no longer tax deductible to the             payor and the associated income is no longer taxable to the recipient 

5. Affordable Care Act

     a. The bill does not repeal the Affordable Care Act’s taxes on net investment income, the             additional Medicare tax, medical device tax and others
     b. The bill does repeal the individual mandate requirement (starting 2019)

6.. Estate tax exemption

     a. Doubles the exclusion amounts
     b. Generation skipping tax exemption is also doubled

Freed Maxick Insights

Time to revisit your Estate Planning. There should be many opportunities to minimize the estate tax burden. 

7. Alternative Minimum Tax
  1.  The exemption increased from $54,300 to $70,300 for singles and from $84,500 to $109,400       for joint filers

Freed Maxick Insights

Maybe next time this will finally go away! Contact us and let’s see how this affects you.


8. Education

  1.  Up to $10,000 in 529 savings plans can now be used for tuition at private and religious K-12       schools
  2. Deductions for classroom supplies bought by a teacher remains
  3. Tax free status of graduate student tuition waivers remains
  4. Student loan interest deduction remains

9. Families
  1.  Child Tax Credit increased from $1,000 to $2,000. Credit is refundable up to $1,400. The plan also increases the income level from $110,000 to $400,000 for married tax filers
  2. $500 credit for each non-child dependent now allowed

Freed Maxick Insights

This provision will offset some of the impact of eliminating personal exemptions for families with multiple children.

 

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.

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