In: Accounting
IRC Section 245 - Explain its purpose and operation. Outline the changes effectuated by the Tax Cuts & Jobs Act of 2017 and its application to foreign sourced dividend."
Purpose and Operation
The major purpose of the act is to reduce the tax rate and make American economy attractive for investment to create more jobs and income of the individuals. The purpose is aimed to be achieved by following operations:
- reducing tax rates for businesses and individuals
- personal tax simplification by increasing the standard deduction and family tax credit
- limiting deductions for state and local income taxes (SALT) and property taxes
- further limiting the mortgage interest deduction;
- reducing the alternative minimum tax for individuals and eliminating it for corporations;
- reducing the number of estates impacted by the estate tax;
- and repealing the individual mandate of the Affordable Care Act (ACA).
Changes
1) The Bill retains the current seven tax bracket structure, although it imposes slightly lower marginal rates on slightly wider brackets. Under the Bill, married taxpayers filing a joint return are subject to the following rates:
2) The Bill eliminates the personal exemption but roughly doubles the standard deduction ($24,000 for married taxpayers filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers) and is accompanied by an enhanced child tax credit as well as a new family tax credit. The child tax credit increases from $1,000 to $2,000 for each qualifying child, and is refundable up to $1,400 per child. The Bill adds a $500 credit for each dependent that is not a qualifying child. The child and dependent credits are subject to a phase-out for married taxpayers filing a joint return with adjusted gross income above $400,000 (and $200,000 for all other taxpayers).
3)The Bill significantly curtails the state and local tax deduction for individuals. If incurred in carrying on a trade or business (or for the production of income), an individual may deduct state, local and foreign property taxes, as well as state and local sales taxes. Otherwise, individuals are limited to a maximum itemized deduction of $10,000 for the aggregate of (i) state and local income taxes (or sales taxes, in the alternative), and (ii) state and local property taxes not paid or accrued in the carrying on of a trade or business or for the production of income.
4) The deduction for home mortgage interest may be significantly reduced. Although qualified residence indebtedness incurred on or before December 15, 2017 is grandfathered (including subsequent refinancings, as long as certain conditions are met), interest is deductible on no more than $750,000 of new indebtedness. Similarly, the Bill eliminates a taxpayer’s ability to deduct interest on home equity indebtedness after December 31, 2017 (with no grandfathering for existing home equity indebtedness)