On December 22, 2017, the federal tax reform bill became law. While some of the provisions entered into force for the 2017 fiscal year, most of the provisions will become effective in the 2018 fiscal year while provisions will not be effective until 2019.
But the changes that will begin in 2018 are the ones that interest us the most, since they are what will affect or favour us in the short term, the provisions with the broadest impact for our clients include:
• Elimination of personal and dependent exemptions. If in 2017 we could claim personal exemptions and deduct $ 4,050 for each exception in our taxes (dependent claimed, including husband, wife, children and other dependents). For example, if you claimed 6 people in your taxes in 2017 ($4,050 X 6 = $ 24,300), by 2018 this disappears.
• To compensate for the above, the IRS increased the standard deduction. For comparison, in 2017 the standard deduction for a single person was $6,350, married $2,700 and head of family $9,350. For the year 2018 we have an increase for single person of $12,000, married $24,000 and head of family $18,000 respectively.
• Based on the above two points, according to the IRS, a person does not need to make and send their tax return if their income was less than their standard deduction.
• Elimination of the deduction for business expenses of unreimbursed employees. This affects all those who are employed with W2 Form and claim food while are in long distance travel.
• $10,000 limit for state and local property taxes paid.
• Increase in the tax credit for children and also the maximum income to claim this credit was increased.
• New $500 credit for other dependents.
• New transfer deduction for people who work for their own account, partners and shareholders of S-corporation.
• The maximum marginal tax rate on corporate income was reduced from 35% to 21%.
• New retention tables applied by most employers. They generally reduced the amount of federal income tax by withholding employees’ pay checks.
• While all these provisions will expire and will revert to the 2017 law after 2025, the reduction in the corporate tax rate from 35% to 21% is permanent.