Introduced in November 2017, the Tax Cuts and Jobs Act has made many important changes and updates to existing tax law for areas like the individual mandate, medical expense deductions, miscellaneous tax deductions, and much more. Given that these changes will be going into effect the next time you do your taxes, it is important to recognize what changes have occurred with the passage of this tax overhaul and how they will affect both your business and personal taxes. Over the next few weeks, we will be discussing the specific changes that have occurred as a result of this new law.

The Individual Mandate

Starting January 1st 2019, you will no longer face a tax penalty for not having health insurance without a valid exemption. The individual mandate was a key provision of the Patient Protection and Affordable Care Act that was signed into law by former President Barack Obama. While the mandate is still in effect for the 2018 year, the individual mandate will no longer be enforced in 2019. While it is obviously a good thing to have health insurance due to the life’s (often undesirable) spontaneity, if you do decide to cut health insurance out of your budget, you won’t have to worry about being penalized by the IRS for your decision. While there are arguments for both the benefits and downsides of this repeal, the fact is that there will be no individual mandate for 2019.

Alimony Deductions

Under the existing tax law, when a person pays alimony, they are able to deduct those payments from their income. The recipients of the alimony payments are then required to count those payments as part of their income. However, beginning January 1st, 2019, alimony payments will no longer be a deductible and the recipients will no longer need to count them as part of their income. This will affect any separation or divorce that was either effective or modified on or after January 1st, 2019.

Child Tax Credit

Under the previous tax law, the child tax credit was $1,000 for each child under 17 years old. As you may already realize, this child tax credit began to decrease by $50 for every $1,000 that you earned over specific thresholds. For instance, this decrease began to occur for single and head of household taxpayers at $75,000 and for married couples at $110,000 (filing jointly) and $55,000 (filing separately). But beginning January 1st, 2018, the child tax credit is $2,000 per child. Also, the new threshold levels begin to decrease at an AGI amount of $200,000. For married couples, the decrease will now begin at AGI amounts of $400,000 and higher.

Corporate Tax Rate

Under the previous tax law, the corporate tax rate for individuals with a taxable income greater than 10 million was 35 percent. Effective January 1st, 2018, however, this top tier of the corporate tax rate is cut down to 21 percent.

Estate Taxes

Previously, estates with a value of $5.49 million or less were exempt from the estate tax (also known as the “death tax”), with a top tax rate of 40 percent. But beginning January 1st, 2018, estates up to $11.2 million are exempt from this estate tax.

In Conclusion

In this article, we discussed five of the specific changes that are occuring as a result of the Tax Cut & Job Act. Next week, we will discuss more of the specific provisions and updates that are occurring as a result of the 2018 Tax Reform. If you would like to know more about the specific details of these changes, or how they are applicable to your situation, feel free to contact MBS Accountancy. Our team of expert accountants and tax law professionals will assist you with any questions or concerns you may have as a result of the 2018 Tax Reform.