2018 Tax Act Overview

The new Tax Cuts and Jobs Act of 2017 has now been codified into law. If you are an employee with an income under $150,000, this new set of laws will benefit you. But, if you are a business owner with income above $250,000, the benefits may not be so transparent, and the changes absolutely DID NOT make your taxes easier or “able to be filed on a post card”. The corporate rate was slashed to 21% from 35%. This highly anticipated reduction has been needed for some time. These new rates generally will be only benefit the larger publicly traded companies. The Federal top individual rate has been reduced to 37% from 39.60%. This is a reduction of 2.9%. For incomes of most of our clients, we have seen the rate reduction is not sufficient to cause an overall reduction in taxes, due to the partial loss of the state and local tax deductions. In fact, we have seen a net increase in income taxes. A new 20% deduction was enacted for flow through entities, such as sole proprietorships, partnerships and S Corps. This may be the one provision of the new Tax and Jobs Act that has garnered the most attention. It is also the most complex. Taxpayers lost the ability to deduct state and property taxes of more than $10,000 per year. This will hit taxpayers especially hard in states with state income taxes. We saw the meals and entertainment deduction eliminated. Taking a client to a business meal is an important part of many marketing plans. Taking steps to mitigate this loss of deductions will be important. The positive news is that a properly structured business may achieve tax benefits. Businesses which take the time to understand the new Act and focus on using multiple entities will be able to receive the maximum benefits from this new Act.