For the first time in 30 years, U.S. Legislators enacted the largest tax overhaul since the establishment of the Tax Reform Act of 1986. The newly established tax reform policy, known as the “Tax Cuts and Jobs Act,” is a pro-growth tax plan that reforms individual and corporate income taxes, and converts the United States’ current progressive tax system into a territorial system of business taxation.
Preliminary details and key provisions for business and corporations include a 21% top corporate tax rate, 20% deduction for pass-through entities, and a five-year immediate expensing provision. These provisions are expected to decrease the top pass-through tax rate to 37%, and repeal cooperate alternative minimum tax.
Modifications to individual tax rates include a standard deduction increase for single filers amounting to $12,000, and a standard deduction increase for joint filers amounting to $24,000. The current child tax credit will be increased to $2,000.
While certain provisions and itemized deductions such as student loan interest deductibility, tax free graduate student tuition waivers, new market tax credit, and private and activity bonds will be retained, other deductions have been amended to accommodate the newly established provisions.
Modified deductions are as follows:
- State and local tax deduction
- Mortgage interest deduction
- Medical expense deductibility
- Death tax
- Rehabilitation tax credit
According to the Internal Revenue Service, guidance regarding tax withholding will be issued in January 2018. To view the Executive Summary prepared by the House Ways and Means and Senate Finance Committees, click here.