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A Summary of Important Changes Affecting You, Your Family and Your Business.

Tax Planning Under the New Tax Cuts & Jobs Act Legislation

With the congressional passage of the Tax Cuts & Jobs Act effective on January 1, 2018 there are many changes to both individual and business tax laws.  The overall effect on individual and business income taxes can be significant and are worthy of considerable consideration as we face this new tax legislation.   While one can easily access the full IRS Implementation (for individuals and business) of the new law here, we have attempted to provide a summary of the more common, yet significant changes with the RECAP video to the left and with Individual and Business excerpts of the law below.

Tax Reform Basics for Individuals and Families (IRS Pub 5307)

The significant implications to be considered are changes to: 1) individual tax rates, 2) elimination of personal exemptions, 3) increase in standard deductions, 4) limitation of the State and Local Tax Deduction. 5) an increase in cash contributions to public charities and certain private foundations, and 6) the elimination of the Miscellaneous Itemized Deductions subject to 2% of AGI.   One of the obvious impacts may be the increased utilization of the standard deduction vs. utilizing Schedule A, Itemized Deductions due to the Act's limitations on the itemized deductions and the overall increase in the standard deduction. One should also pay attention to the large change in tax rates on income levels approaching/exceeding $77,400.

STANDARD DEDUCTIONS FOR 2020

• $24,800 for Married Filing Joint
• $18,650 for Head of Household
• $12,400 for All Other Taxpayers

PERSONAL EXEMPTIONS

• The deduction for personal exemptions has been eliminated.

STATE AND LOCAL TAX DEDUCTION (SALT)

• limited to $10,000 of the aggregate State & Property Taxes

CHILD TAX CREDIT

• $2,000 per qualifying child under age 17
• $500 for non-qualifying dependent under age 17

401K AND IRA CONTRIBUTION LIMITS FOR 2020

• Limit to 401K contributions to $19,500.
  
• Limit on IRA contributions to $6,000; $7,000 if 50 or over.
  

TRADITIONAL IRA TO ROTH IRA CONVERSIONS

• The special rule that allowed a traditional IRA to Roth IRA conversation to be later undone and avoid the tax on the conversion by re-characterizing the Roth IRA back to a traditional IRA is repealed.

MEDICAL EXPENSE DEDUCTION

• The threshold for medical expenses is lowered to 7.5% of AGI.

MISCELLANEOUS ITEMIZED DEDUCTIONS SUBJECT TO 2% OF AGI FLOOR.

• This provision which included tax preparation fees, investment fees and un-reimbursed employee job expenses has been eliminated

CASUALTY AND THEFT LOSS DEDUCTION

• Eliminated except for Personal Casualty Losses in a Federally-Declared disaster.

CAPITAL GAINS & LOSSES

• There is no change to the long-term 0% 15% or 20% tax rates.

EIC/EITC Limit Adjusted

• The maximum Earned Income Credit amount is $6,660 for taxpayers filing jointly who have three or more qualifying children.

MOVING EXPENSES

• The deduction for moving expenses has been suspended for most taxpayers for tax years beginning after Dec. 31, 2017 through Jan. 1, 2026.

ALIMONY

• Alimony and separate maintenance payments are no longer deductible for any agreement executed or modified after 12/31/2018.

KEY BUSINESS TAX PROVISIONS

There has been a lot of interest around the new Qualified Business Income (QBI) Deduction also know as Section 199A since it was included in the Tax Cuts & Jobs Act.  This new provision provides a deduction of up to 20% of qualified business income and is available for sole proprietorships, partnerships, and S Corporations.  The deduction, however, is subject to various rules and regulations.  There may be ways to fully benefit from this new tax legislation by developing income strategies to maximize your QBI deduction. 

Other Business Highlights are depicted in the video to the left.

 ALL BUSINESS IMPACT

• The NOL calculation has changed (after 2017) to the lesser of the aggregate NOL carryovers plus carry backs or 80% of taxable income.

• The Net Operating Loss 2-Year Carry Back has been eliminated.
• Bonus depreciation of 100% is now allowed for tangible business assets (except structures) acquired after Sept 27, 2017 and through 2022.
• Property placed in service after 2017, the expense and investment thresholds for Section 179 are increased to $1,000,000 and $2,500,000
• Meals & Entertainment Expenses in most all cases have been disallowed.

C CORPORATIONS

• The corporate tax rate has been changed to a flat 21%
• Corporate Alternative Minimum Tax (AMT) has been repealed.

S CORPORATIONS, PARTNERSHIPS AND SOLE PROPRIETORSHIPS

• New Qualified Business Income (QBI) Deduction - Section 199A.

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Tax Preparation from the comfort and safety of your home or office!

Larry E Baker, EA
Baker Tax Services LLC
5900 Jasper Street, Timnath CO 80547
(970) 300-1551