On December 22, 2017, The Tax Cuts and Job Act of 2017 was passed into law.
While there are plenty of more details, some of the main items are as follows:
For tax year beginning 2018, the Standard Deduction has closed to doubled, while personal exemptions have been eliminated. And while most of the actual itemized deductions were kept (with some tweaks, such as state and local property/taxes capped at $10k, and limits on mortgage interest, among others), many taxpayers will be better of using the standard deduction as opposed to itemizing.
The change with the biggest impact is definitely the corporate provisions. C-Corps are now taxed at 21% (down from 35%). But that’s still not the biggest change.
That’s reserved for Section 199A – Pass Thru Tax Breaks
The rules here are complex, but basically this is a new deduction for small business owners of 20% of “net qualified business income.” There are a bunch of limitations (anyone who says this is tax “simplification” is flat out lying). But this can be a huge deduction for small business owners (Sole proprietors, S-Corps, LLC’s, real estate investors). Some of the limitations involve the owners total taxable income, W-2 wages paid, and depreciable property owned.
And in case you were thinking, “I’ll just convert to a C-Corp for the 21% rate”, that will probably not be to your benefit, as then you have the choice of taking the money out as payroll and being subject to large employment taxes (avoiding that is very often the reason for going S-Corp in the first place), or taking the money out as a dividend, and being subject to double taxation on it.
None of Section 199A takes effect until 2018, so there is no need to rush to make any changes. But for many of you some more serious tax planning will be in order for 2018 and forward.
For anyone with 2016 returns that were on extension and due either Sept 15 (Corp, Partnership, etc., as well as payroll tax deposits), or and/or Oct 15 (personal) that have not been completed, the IRS has granted an automatic extension until Jan 31, 2018 (This includes estimated tax payments). I was pretty confident that would occur. I remember the same after Hurricane Wilma did its damage. You can see the link here:
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