The biggest U.S. tax reform since 1986 consists of major tax law changes that will affect everyone.
The Warren Averett Tax Reform Committee has been monitoring the changes closely and providing updates as the details emerge throughout the negotiation process. This bill consists of sweeping changes for individuals and businesses and impacts tax planning, compliance, financial reporting, auditing, internal controls and more. We are committed to keeping you up-to-date on how this tax reform legislation will affect you and your business.
See below for the changes affecting individuals and business. Click here to view a comparison of the previous and current tax rates for individuals and businesses.
The final bill has been a compromise when it comes to individual taxes. Originally, most deductions were set to be repealed; however, in conference most deductions and credits were retained. Individuals will benefit from the standard deduction nearly doubling. In addition, the bill leaves the deduction for state and local taxes but limits the deduction to $10,000. In order to keep the cost of the bill within Senate budget rules, all of the changes affecting individuals begins for tax year 2018 and is set to expire in 2025.
Individual tax rates have been lowered. The maximum tax rate is going from 39.6% to 37%. There is a deduction for taxpayers on their pass-through income (subject to limitations) which will lower the effective tax rate for qualified business income picked up on an individual’s return. See Pass-Through Entities section below for additional information.
Here is a summary of some of the key points for Individual Taxpayers:
The most significant change for corporations is moving from the graduated corporate tax rate structure to a flat rate. Although President Trump was originally fighting for the corporate rate to be reduced to 15% lawmakers settled by reducing the rate from 35% to 21%.
Here is a summary of some of the key points for Corporate Tax:
See the Business Asset Expensing and Other Business Changes sections below for additional information.
The final bill will also impact corporations and financial statement reporting under the FASB’s income tax accounting guidance. These changes would need to reflect the impact of the new laws in the reporting period of enactment.
A few of the major changes that would require deferred tax assets and liabilities to be reevaluated and valuation allowances to be reassessed are the following:
Changes in deferred tax assets and liabilities would have the following results:
The final changes will need to be taken into consideration on how the year-end financial statements will be impacted. Otherwise, a non-recognized subsequent event disclosure would likely need to be included in the financial statements.
While the focus of the new law is to lower tax rates for corporations and individuals, there are several provisions that affect pass-through entities. The biggest change is the individual exclusion of pass-through income which provides a potential tax break for pass-through entity owners. Below are the key pass-through changes that will affect pass-through owners.
The Conference Agreement contains significant taxpayer friendly depreciation and business asset expensing provisions. Many assets will now be expensed through bonus depreciation or Section 179 expense when purchased.
The Conference Agreement changes many items affecting business and below is a summary of some of the key proposed law changes that will affect many businesses.
The final bill made several changes to provisions related to tax-exempt entities, while eliminating several other provisions that had appeared in previous versions of the bill. The main concern of most tax-exempt entities still remains the overall effect on charitable giving considering the increase in both the standard deduction and the doubling of the exemption amounts for the estate tax. For further information please contact the Warren Averett NonProfit team or your Warren Averett Advisor.
Here is a summary of some of the key points for Tax-Exempt Entities:
There are many changes to the international taxing scheme summarized below. If you have international operations, please contact the Warren Averett International team or your Warren Averett Advisor.
The conference report also modifies the foreign tax credit system in several ways, including:
Additionally, the conference report includes a number of significant modifications to the CFC subpart F rules including:
Moreover, the conference report includes a number of provisions designed to address base erosion, including rules relating to:
The conference report also contains rules relating to:
Some notable provisions that were included in the House bill, Senate amendment, or both, that were not included in the conference report include (but are not limited to) the following provisions relating to:
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