Tax Reform Update:
The Tax Cuts and Jobs Act
Tax Cuts and Jobs Bill (H.R. 1) is the first significant tax
reform effort undertaken by Congress in more than 30 years.
The bill was passed by both the House and the Senate and
signed into law by President Trump.
Tax Brackets. The number of tax brackets remains at seven;
however, the tax rates and income covered have changed.
For individuals, the following tax rates apply:
- 10% up to $9,525
- 12% up to $38,700
- 22% up to $82,500
- 24% up to $157,500
- 32% up to $200,000
- 35% up to $500,000
- 37% over $500,000
For married couples filing
jointly, the following rates apply:
- 10% up to $19,050
- 12% up to $77,400
- 22% up to $165,000
- 24% up to $315,000
- 32% up to $400,000
- 35% up to $600,000
- 37% over $600,000
Standard Deduction. The standard deduction increases to
from $6,350 (2017) to $12,000 for individuals, from $9,300
(2017) to $18,000 for heads of household and from $12,700
(2017) to $24,000 for married couples.
Personal Exemption. The
deduction for personal exemptions is repealed through 2025.
Child Tax Credit. The Child Tax Credit increases to
$2,000 from the current $1,000. An additional $500 credit is
provided for each non-child dependent. Also, Social Security
numbers for children are required before claiming the enhanced
Alternative Minimum Tax. The AMT remains but exemption
amount increase to $70,300 for individuals and $109,400 for
married filing jointly, affecting fewer taxpayers.
Capital Gains and Dividends. The maximum tax rate
remains at 23.8% (20% plus the 3.8% Medicare tax for taxpayers
with income above $200,000 or $250,000 married filing
jointly). The 20% capital gains income threshold increases to
$425,800 for other individuals ($479,000 for married taxpayers
Estate Tax. The exemption (currently $5.5 million)
immediately doubles to $11.2 million in 2018 and remains at
this level for the next six years, after which time the estate
tax is is eliminated completely (tax year 2026 and beyond).
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Education-Related Tax Credits and Deductions. 529
Savings Plans are expanded to allow some funds (up to $10,000
for certain expenses) to be used for K-12 education. Rollovers
to Achieving a Better Life Experience (ABLE) Sec. 529A
accounts will be allowed as well. The student loan interest
Mortgage Interest Deduction. Remains but with a few
changes such as allowing interest deduction for up to $750,000
(currently $1 million) in mortgage principal on new homes.
Existing mortgages are grandfathered in. Homes entered into
contract before December 15, 2017, and closed on by April 1,
2018, are able to use the prior limit of $1 million.
Home-equity loans. The home-equity loan interest
deduction is repealed through 2025.
State and Local Income Tax Deduction. Preserved.
Deduction allowed for up to $10,000 a year in state and local
income or property taxes.
Note: Taxpayers who
prepay 2018 state income taxes, a common tax planning
strategy, cannot take the prepaid 2018 amount as a deduction
on their 2017 tax returns.
Deductions for charitable donations remain; however, for
charitable contributions of cash to public charities the
percentage of income limit increases to 60%.
Medical Expense Deductions. The Medical expense
deduction (currently 10% of AGI) is temporarily lowered to
7.5% of income for tax years 2017 and 2018.
Miscellaneous Deductions. Many are repealed through
2025 including those relating to tax preparation, alimony
payments (after December 31, 2018), and moving expenses with
the exception of the moving expense reimbursement for members
of the Armed Forces on active duty who move because of a
Adoption Tax Credit. Remains.
Electric Vehicles. The $7,500 tax credit (Sec. 30D) for
the purchase of electric vehicles remains.
Individual Healthcare Mandate. Penalty is eliminated
for tax years starting in 2018.
Corporate Tax Rate. Starting January 1, 2018, the
corporate tax rate is reduced to a flat rate of 21% (down from
35%). THe corporate AMT is repealed.
Territorial Taxation. Companies with offshore earnings,
currently taxed at a 35% rate, would transition to a
territorial tax system. Under the tax reform bill income
derived from offshore earnings, if repatriated, would be
subject to an effective tax rate of 15.5% for earnings held in
liquid assets (i.e. cash) and 8% for illiquid (other) assets.
Business Interest. Small businesses (under $25 million)
retain the ability to write off interest on loans subject to
Businesses would be allowed to immediately write off the full
cost of new equipment at 100% through tax year 2022, after
which it would be phased down over a four-year period.
Business Entertainment Expenses Deduction. The
deduction for business entertainment expenses is eliminated.
Pass-through Entities. The tax rate on pass-through
business entities is reduced to a maximum of 20% for tax years
starting January 1, 2018, and ending on December 31, 2025.
Low-income Housing Tax Credit. Remains.
Research & Development Tax Credit. Remains.
Work Opportunity Tax Credit. Remains.
Endowment Assets. A 1.4% excise tax is imposed on
investment income derived from endowment funds at private
colleges and universities. An exclusion is provided for an
institution with less than 500 full-time equivalent students
whose endowment (fair market value) is less than $500,000 per
If you're ready to meet with a tax professional to discuss tax
planning strategies for your business or as an individual,
call the office today at 301-657-8080.
DID YOU KNOW
that Sullivan & Company manages Pension Funds,
Retirement Plans & Taxable Accounts through Archer
Investment Corporation & Fidelity Investments for our
Fidelity is the custodian for more
retirement plans than any other custodian in the United
Let Sullivan & Company Analyze Your Asset Allocation
& Risk Tolerance for FREE!
Management at Sullivan & Co. CPAs
Sullivan leads our
Group and is here to help you navigate your
As Investment Advisor
Representatives, he and our Wealth Management team are able
to provide an independent opinion on the investments you
already own or are considering buying.
We can structure a portfolio
based on your risk tolerance or we can help you decide how
to invest in your company 401(k) plan.
We work with each
client to identify their concerns and to provide solutions
according to their situation.
is also experienced in company retirement plans. If you own
a business that does not have a plan; we can discuss your
options and set up a plan that fits your company.
If your business already has a
plan; we offer a free evaluation of the plan to ensure that
it is up to date and working well for you and your
Our goal is to provide personal, unbiased and independent
advice to help you make well-informed decisions about your
financial life and investments.
Contact Chris Bailey, CPA, MBA, IAR or Ben Perron, CPA, IAR
or Paul Sullivan, CPA, IAR to set up a free
initial consultation (301) 657-8080.
And as always if you have any questions about accounting or
investments and how they effect you or your business, please
give us a call. We can help guide you in the right
you can call our offices if you have any questions about these
or any other accounting, tax, financial planning or insurance
related issues, at 301-657-8080.
Regards, Paul Sullivan, CPA, IAR
President, Sullivan & Company