The Tax Cuts and Jobs of 2017 (the Act) included a number of promised provisions to cut the corporate tax rate on a permanent basis, provide time limited tax cuts for individuals and incorporate a number of provisions that may change taxpayer behavior on everything from housing choices to charitable giving to education. The final bill, passed by the Senate on December 20 and signed into law by President Trump on December 22, 2017, does not include other provisions that would have had a significant impact.
For example, the Senate bill would have required that the cost of any specified security sold, exchanged, or otherwise disposed of after December 31, 2017, be determined on a first-in first-out basis except to the extent the average basis method is otherwise allowed. The bill would have provided an exemption for mutual funds. This proposed permanent change was a revenue raiser that would have front loaded gains for small investors who had held growth stocks for extended periods. It was dropped from the final bill.
Corporations will benefit from a reduced top marginal rate of 21 percent. The reduced rate comes with trade-offs, including a haircut on NOL carryforwards. Businesses generally will benefit from accelerated cost recovery and expensing but will lose tax benefits as a result of a new limitation on the business interest dedecution. Read more.
The Act contains several provisions that affect pass-through entities. The most substantial change is a provision that creates a 20 percent deduction for certain kinds of “qualified business income.” Other changes might be better characterized as technical corrections or legislative reversals of court decisions that upended long-standing IRS positions. Read more.
The Act’s most significant change affecting individual taxpayers is an increase in the standard deduction amount. Because the Act also limits or suspends a number of miscellaneous itemized deductions, many taxpayers may resort to the standard deduction, which also simplifies the tax filing process. Read more.
A number of provisions affect individual retirement arrangements, loans and employee compensation. Some provide for increased flexibility, while others are more restrictive. Almost all of them make an already complicated area more complex. Read more.
Under the new law, for estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026, the base estate and gift tax exemption amount is doubled from $5 million to $10 million. Read more.
Until enactment of the new tax law, the United States had the highest corporate tax rate among countries who are members of the Organization for Economic Cooperation and Development. This high rate caused many US corporations to keep foreign-generated earnings overseas because they would generally remain untaxed until repatriated to the United States. To encourage US corporations to reconsider where they conduct business and to repatriate foreign earnings for domestic use and investment, Congress has imposed a “partial” territorial system of taxation that will, in many cases, not tax foreign-sourced income. Read more.