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Major Tax Reform Is Here


The tax bill was signed by the President today (December 22, 2017). While the effective date of the bill will be January 1, 2018, it is important to note that many of the tax changes are temporary in order to comply with the budget reconciliation process. The bill proposes reductions in individual and corporate tax rates, increases business fixed asset expensing, repeals corporate AMT, makes significant changes to individual credits and deductions, and contains provisions for repatriation of overseas profits.
Individuals:
  • Decreases top individual tax bracket from 39.6% to 37% tax rate. This tax bracket applies to married couples filing jointly with income over $600,000; $500,000 for single filers
  • Decreases the likelihood of the Alternative Minimum Tax (AMT)
  • Significantly changes itemized and standard deductions
    • Increases standard deduction to $24,000 for married couples filing jointly; $12,000 for single filers
    • Limits state and local tax deduction for both real estate, sales, and income taxes to $10,000
    • Limits mortgage interest deduction to $750,000 of acquisition debt. The pre-2018 limitation was $1 million and is retained for existing loans
    • Repeals deduction for home equity debt
  • Eliminates itemized deduction phase-outs
  • Eliminates personal exemption deduction
  • Repeals penalty associated with failure to purchase health insurance
  • Increases child tax credit to $2,000
  • Repeals deduction for alimony payments and inclusion of payments received as income
Business Tax:
  • Creates a 21% corporate rate for years beginning after 12/31/2017
  • Repeals corporate Alternative Minimum Tax
  • 20% deduction from taxable income for certain pass-through entities
    • Limited to 50% of W-2 wages paid, or
    • Limited to 25% of wages paid plus 2.5% of the cost of tangible depreciable assets in the business
  • Allows for full expensing of assets purchased after 9/27/2017 for five years
    • Does not apply to structures
  • Limits net operating losses to 80% of taxable income
    • Can be carried forward indefinitely
    • Eliminates the carryback provisions
  • Repeals 9% Domestic Production Activities Deduction
  • Repeals use of like-kind exchanges for personal property; Real property is still eligible
International Tax:
  • Changes U.S. to territorial tax system
  • 15.5% tax on repatriated earnings and profits of cash assets
  • 8% tax on repatriated earnings & profits of illiquid assets
  • Eliminates deduction for foreign property taxes
Estates and Trusts:
  • Increases estate tax exemption to $22.4 million for married couples (WA state exclusion for 2018 is $2,193,000 per person)
  • Four tax brackets with maximum rate of 37%

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Your team at Berntson Porter looks forward to working with our clients on this historic change to our tax system. If you have any questions or need assistance with the reconciliation, please contact your Berntson Porter representative at 425-454-7990. We’re here to help!