The most significant federal tax reform legislation in decades, known as The Tax Cuts And Jobs Act, has been enacted. The tax law changes are voluminous, but here are some highlights involving businesses and individuals that take effect in 2018:
The tax rate for “C” Corporations has been dropped to 21%.
The corporate alternative minimum tax has been repealed.
Certain business income of pass-through entities, such as Limited Liability Companies, Partnerships, “S” Corporations and Sole Proprietorships, will be eligible for a 20% deduction subject to limitations.
Qualified depreciable assets will be entitled to immediate expensing.
Deduction for interest expense is limited to 30% of adjusted taxable income.
Net operating loss carryforward deductions are limited to 80% of taxable income and net operating loss carryback deductions are no longer allowed.
Sweeping changes have been enacted involving taxation of off-shore income.
The top tax rate for individuals has been dropped to 37%.
Exemption amounts have been increased in determining the application of the individual alternative minimum tax.
The amount of the standard deduction on returns for individuals has been doubled.
The deduction for personal exemptions on returns for individuals has been suspended.
Deductions for state and local taxes on returns for individuals has been repealed except for $10,000 in any combination of income, property or sales taxes.
For new mortgages, the mortgage interest deduction has been limited to interest on $750,000 of indebtedness.
Section 529 plans can now be used for elementary and secondary education.
The basic estate and gift tax exclusion amounts have doubled to $11 million per person.
In addition to many other important changes to the tax laws contained in this legislation, certain of these provisions will require guidance from the Internal Revenue Service over the months ahead. Furthermore, we will await to see what, if anything, the State of California does to conform State tax laws to certain of these changes.