Tax Law Client Alert: How the Tax Cuts and Jobs Act Affects You

In November, the U.S. House of Representatives passed the Tax Cuts and Jobs Act, sending the bill to the U.S. Senate.  This past Saturday, the Senate passed its version of the Tax Cuts and Jobs Act.  There are many differences between the House and Senate bills, including the individual tax brackets and how pass-through entities are taxed.  We call your attention to some of the key provisions in the House and Senate bills, along with how the bills change the current tax code.  Now that the Senate has passed its version, the bills need to go through the reconciliation process before they are sent to President Trump’s desk to sign into law.  If the Tax Cuts and Jobs Act is signed into law, we encourage you to contact the Firm to discuss best practices for incorporating the changes into your business and tax planning, along with any questions you may have about how the law impacts you.

Provision Current Law House Tax Cuts and Jobs Act Senate Tax Cuts and Jobs Act Income Tax Rates 10%, 15%, 25%, 28%, 33%, 35% and 39.6% Would create four personal tax rates of 12%, 25%, 35%, and 39.6% that generally would kick in at higher thresholds than current law, effective in 2018. Would retain seven tax brackets that would apply to higher tax brackets. The proposed brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%

  Standard Deduction and Personal Exemption $12,770 for married couples filing jointly; $9,350 for head-of-household; $6,350 for all other taxpayers $24,000 for married couples filing jointly; $18,000 for head-of-household; $12,000 for all other taxpayers. The personal exemption is eliminated.

  $24,000 for married couples filing jointly; $18,000 for head-of-household; $12,000 for all other taxpayers. The personal exemption is eliminated. SALT Deductions Currently, taxpayers may deduction state, local and property taxes. Eliminates individual state and local income tax deduction, but retains property tax deduction with cap of $10,000.

  Eliminates individual state and local income tax deduction, but retains property tax deduction with cap of $10,000. Taxation of Pass-Through Businesses Currently taxed at the applicable individual income tax rate. The tax rate applied to business-related income from partnerships, limited liability companies and S corporations would be 25% for active participants in the business operations.  Passive investors who do not materially participate in the business would be subject to a 9% tax rate.

  Permits individuals to deduct 23% of qualified domestic business income, equating to a 29.6% maximum rate, effective in 2018. Estate Tax For an individual who dies during the 2017 calendar year, the estate tax exemption is $5.49 million. The estate tax exemption amount would be doubled in 2018.  The estate tax would be repealed completely for individuals dying after 2023. The estate tax exemption amount would be doubled in 2018, however the estate tax will be retained going forward.