Question

Tax reform has been discussed by Congress for many years. A number of changes were implemented for the 2018 tax year. There are several areas of changes that affected individual taxpayers and businesses. What were some of the changes?

Answer 1

Tax reforms changes [ Which affects business entity ]

1) Introduction of Flat corporation tax rate of 21%. It is applicable to PSCs too. Before 2018, C corporation paid a graduated federal income tax ranging from 15% to 35%.

2) Elimination of Corporate alternative minimum tax. It was at a rate of 20%. From 2018 , it has been abolished to maintain easy tax return .

3) Introduction of 100% first year bonus depreciation. It is applicable for qualifying assets placed in service between, 9/28/17 to 12/31/22. It allows 100% write off for qualified assets .It is advantageous for many company to get tax benefits in first year, when they have purchased the assets .

4) Depreciation deduction for passenger vehicles has been increased for those passenger vehicles, which are placed in service on or after 2018. As per TCJA deduction are $ 10,000 for 2018 or $18,000 if bonus depreciation claimed. $ 16,000 for 2019, $ 9,600 for 2020 and $ 5,760 for 2021 and onwards .

5) Introduction of reduced limit of business interest expense deduction. Before 2018 full deduction for interest expense were allowed. But from 2018, Business cannot deduct interest expenses in excess of 30% of adjusted taxable income .

Tax reforms changes [ Which affects individual tax payers ]

1) Abolition of personal exemption. Before 2017 the personal exemption was $ 4,050 per person. But from 2018 such exemption has been totally abolished .

2) Introduction of New slabs of higher amount of standard deduction. Standard deduction raised from $ 6,500 to $ 1,2000 for singles and $ 13,000 to $ 24,000 for married couple. Standard deduction is increased also for heads of household to $ 18,000.

3) Taxable income Range for tax liability calculation has been raised and also rate of income tax has been reduced. Tax rate for 2017 was ranging from 10% to 39,60%. Tax rate for 2018 came down to 10% to 37% along with increased ranges of income.

4) The tax cuts and Jobs act limited two itemized deductions, the mortgage interest and state and local taxes paid ( SALT) and eliminated several smaller itemized deductions.

Under previous law individuals could deduct the entire amount paid of either state individual income tax or sales tax, but not both along with state and local property taxes paid . Now, from 2018 total of $ 10,000 can be deducted among state and local property , sales and income tax paid.