Wallace Plese + Dreher

The tax reform passed in 2017 is complicated and about 70,000 words. We can look forward to more guidance and clarifications. For now, here are summaries of some key provisions.
Key Changes for Individuals
Standard Deduction Amount Increased. For 2018, the standard deduction amount significantly increased for all filers, as noted below. Some taxpayers who previously itemized their deductions may no longer find that necessary.
+ Single or married filing separately: $12,000.
+ Married filing jointly or qualifying widow(er): $24,000.
+ Head of household: $18,000.
Deduction for Personal Exemptions Suspended. For 2018, you cannot claim a personal exemption deduction for yourself, spouse, or dependents.
Changes to Deductions. Those still itemizing should note the following changes and plan accordingly:
+ Your itemized deductions are no longer limited if your adjusted gross income is over a certain amount.
+ You can deduct the part of your medical and dental expenses that is more than 7.5 percent of your AGI.
+ Your deduction of state and local income, sales and property taxes is limited to a combined total of $10,000 ($5,000 if married filing separately).
+ You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2 percent of your AGI floor. You may still deduct certain other items on Schedule A, such  as gambling losses.
+ No more deductions for tax preparation fees or investment expenses, including investment management fees.
+ For indebtedness incurred after December 15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 of home acquisition indebtedness. This new limit does not apply if you    had a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018, and the prior limit would apply.
+  You can no longer deduct interest on home equity indebtedness, which means indebtedness not incurred for the purpose of buying, building or substantially improving the qualified residence secured by the  indebtedness.
+  The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your AGI.
Lifetime Estate and Gift Tax Exemption. The Lifetime and Gift Tax Exemption has doubled to $11,180,000 and the tax rate remains at 40%.
Children and dependents. The law made some significant changes.
Kiddie Tax. The Kiddie Tax changed unearned income of children under the age of 18 to tax rates applicable to estates and trusts instead of the parents’ marginal tax rate.
Child Tax Credit and Additional Child Tax Credit. For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 is now refundable to lower-income taxpayers. In addition, the income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Credit for Other Dependents. A new credit of up to $500 is available for each dependent that does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Section 529 College Savings Plans. Section 529 College Savings Plans have been enhanced to provide annual distributions up to $10,000 per student to pay for qualified tuition expenses for elementary and secondary education.
Marriage. Alimony and separate maintenance payments are no longer deductible for any agreement executed or modified after December 31, 2018.
What is Not Changing. The IRS has noted that the following provisions and numbers remain the same for tax year 2018:
+ The annual exclusion for gifts is $15,000.
+ The monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking.
+ The AGI amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000.
Social Security. Not related to tax reform changes, but still important to individuals and businesses, is the decision to give Social Security recipients a 2.8 percent cost-of-living raise in 2019. Also changed is the maximum taxable amount subject to Social Security tax. This number will increase to $132,900 from $128,400. The tax rate itself is unchanged: 7.65 percent each for employees and employers and 15.30 percent for those who are self-employed.
Key Changes for Businesses
Based on your business, you may see significant changes under the new law.
Pass-through Provisions. Many owners of sole proprietorships, partnerships, trusts and S corporations may be eligible for a new deduction, referred to as the Qualified Business Income Deduction, allowing them to deduct up to 20 percent of their qualified business income.
Net Operating Losses. Net Operating Losses can no longer be carried back and are carried forward indefinitely. However, the new tax law limits the net operating loss deduction to 80 percent of taxable income.
C Corporations. The income tax rates for C corporations have been reduced from a top rate of 35 percent to a flat 21 percent rate.
Alternative Minimum Tax. The new law retains the alternative minimum tax for individuals but with much higher exemption amounts. However, the alternative minimum tax is completely repealed for C corporations.
Meals and Entertainment. The new law generally eliminated the deduction for any expenses related to activities considered entertainment, amusement, or recreation. However, under the new law, taxpayers can continue to deduct 50 percent of the cost of business meals if the taxpayer, or an employee of the taxpayer, is present and the food or beverages are not considered extravagant.
Moving Expenses. The above the line deduction for qualified moving expenses is completely repealed.
Temporary 100 Percent Expensing. The new law temporarily allows 100 percent expensing for business property acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100 percent allowance generally decreases by 20 percent per year in taxable years beginning after 2022 and expires January 1, 2027.
Expensing Depreciable Business Assets. The maximum deduction was increased to $1 million and the phase-out threshold increased to $2.5 million. The new law also modifies the definition of section 179 property to allow the taxpayer to elect certain improvements to nonresidential real property.
New Employer Credit for Paid Family and Medical Leave. A new tax credit was added for employers that offers paid family and medical leave to their employees. The credit applies to wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020.
Opportunity Zones. Investments in Opportunity Zones provide tax benefits to investors. Investors can elect to temporarily defer tax on capital gains that are reinvested in a Qualified Opportunity Fund (QOF). The tax on the gain can be deferred until the earlier of the date on which the QOF investment is sold or exchanged, or December 31, 2026.
Sexual Harassment. This provision did not get a lot of attention, but the new law makes it clear that no deduction is allowed for certain payments made in sexual harassment or sexual abuse cases.
Bottom Line. Of course, this is not everything and there are a lot more details. The key is to be proactive and speak to us about withholding adjustments and other tax planning issues in the new year.

The Internal Revenue Service (IRS) issued additional guidance on the business expense deduction for meals and entertainment following law changes in the Tax Cuts and Jobs Act (TCJA). The 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation.
Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer, or an employee of the taxpayer, is present and the food or beverages are not considered lavish or extravagant. Meals may be provided to a current or potential business customer, client, consultant, or similar business contact.
If purchased separately from the event, food and beverages that are provided during entertainment events will not be considered entertainment.
Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business.
The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Taxpayers are encouraged to contact us to ensure the latest guidance is being followed.