The GOP recently passed the Tax Cuts and Jobs act, the biggest tax overhaul since 1986. Most taxpayers will see a 1-4% reduction in their marginal tax rate. While the $4,050 personal exemptions are repealed, the standard deductions nearly doubled, to $12,000 for individuals and $24,000 for joint filers. The child tax credit will also double, from $1,000 to $2,000.

The deduction for state and local taxes (SALT)—which includes property taxes—will be capped at $10,000. The mortgage interest deduction will be limited to interest on new mortgages under the $750,000 limit (down from $1 million), while interest on home equity lines of credit will no longer be deductible.

Owners of pass-through businesses will be able to deduct 20% of their business income. This does not apply to service businesses, including accountants, lawyers, investment advisors, and other businesses where the “the principal asset of such trade or business is the reputation or skill” of its employees and owners. However, service business professionals whose income is under the phase-out limits, starting at $315,000 for joint filers and $157,500 for individuals, would qualify for the deduction.

The Alternative Minimum Tax (AMT) was not repealed for individuals, but the exemption levels have been increased. This means that most people will no longer be subject to AMT unless they have very large adjustments such as the Incentive Stock Option bargain element.

The estate tax threshold was doubled to $11.2 million per individual. This will result in far fewer estates being subject to estate taxes.

The new tax law also expands the use of 529 savings plans beyond college costs. People may now withdraw up to $10,000 annually to cover qualified expenses for K-12 education. While lowering the marginal tax rates should lower taxes for many, the loss of deductions will end up increasing taxes for some, especially for residents of states with high income taxes, such as California, New York and Connecticut.

We encourage you to speak with your accountants and reach out to us with further questions.

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