The Impact of Tax Legislation Changes
By Paul Impellicceiri
A.F. McGervey & Co., LLC
In light of the significant changes to the tax landscape, taxpayers are trying to interpret and measure the impact of the new legislation. As year-end approaches, companies and individuals should seek additional guidance on how to implement and plan for the changes.
Major provisions affecting businesses:
- In an effort to be more competitive in the global market, the C-corporation tax rate has been reduced to 21 percent. This has caused many business taxpayers to revisit their entity structure to determine if a change may make sense.
- Pass through entities are now eligible for the 20 percent Qualified Business Income deduction. Those entities that meet the requirements of the law may have the opportunity of a pass through deduction that reduces the taxable income to its owners by 20 percent. This provision applies to S-corporations, partnerships, and sole proprietorships.
- 100 percent bonus depreciation has been extended to 2018, and for tax years through 2022. After that date, it is phased out over several years. In addition, bonus depreciation now can be applied to used equipment purchases.
- Section 179 expensing limit has been increased to $1 million, and the phase-out limit has been increased to $2.5 million for 2018. These limits will continue to be indexed for inflation.
- The new law eliminated the deduction for certain entertainment and related expenses. In an attempt to clarify this provision, the IRS has indicated that meals and related expenses, in conjunction with business meetings and employee functions, may still be eligible for the 50 percent deduction.
Highlights of major provisions affecting individual taxpayers:
- The highest tax rate has been reduced from 39.6 percent to 37 percent. The lower tax brackets have been reduced and adjusted as well.
- The standard deduction for single and married individuals has been increased significantly. This was done in an effort to simplify the tax reporting for millions of taxpayers who will no longer need to track itemized deductions.
- Personal exemptions have been eliminated.
- State and local income taxes, real estate taxes and other taxes are now limited to $10,000 in total.
- The child tax credit has been increased to $2,000 per child under 17.
- Miscellaneous itemized deductions have been eliminated.
- The alternative minimum tax exemption has been increased. In addition, the income limitation, before the exemption phases out, has been increased significantly. This will reduce the number of taxpayers affected by the alternative minimum tax.
- The mortgage interest deduction has been limited on new mortgages which exceed $750,000. As part of this provision, the deduction for home equity debt not used to purchase or improve a residence has been eliminated.
The changes in the tax code will impact almost all taxpayers. It is important to gain an understanding of the effects - prior to the filing season - to minimize surprises and to take advantage of any planning opportunities.
Paul Impellicceiri is a partner at Pittsburgh-based accounting/auditing firm, A. F. McGervey & Company, LLC and can be reached for comment at (412) 653-6101 or firstname.lastname@example.org.