The Tax Cuts & Jobs Act Revisited [2020 Tax Update]
The Tax Cuts and Jobs Act (TCJA) received a lot of attention when it passed in 2017, but with everything that has happened since, it would be a good idea to take another look at the TJCA. Some provisions of the tax reform act did not go into effect immediately, so you might want to talk to a Maryland tax attorney and revisit the TJCA.
How the TJCA Changed the Tax Rules for Businesses
The TCJA was the first significant tax reform in many years, and it changed multiple aspects of tax law for corporations, sole proprietorships, partnerships, limited liability companies, and S corporations. Here are a few of the main changes of TCJA for businesses:
Corporate Tax Rate. Some corporations now pay a flat 21 percent tax rate while others use a blended tax rate.
Corporate Alternative Minimum Tax. There is no corporate alternative minimum tax (AMT) for corporations.
Many businesses now have a new deduction, the qualified business income deduction. Qualified business income does not include capital gains, dividend or interest income, or employee wages, but it does include domestic income from a business or trade.
There is now a temporary increase in bonus depreciation for qualified property. The property can have a 100 percent bonus depreciation instead of the previous 50 percent if it meets all of the requirements.
Additional depreciation changes apply to expensing depreciable business assets, different limits on luxury cars and personal use property, and the alternative depreciation system recovery period for residential rental property.
These are just a few of the TCJA changes that affect businesses.
The Effect of the TJCA on Individuals and Families
Businesses were not the only ones whose rules changed because of the TCJA. The income tax regulations also changed for individuals and families. Here are a few examples of the new regulations:
You no longer have to report healthcare coverage, claim a coverage exemption, or pay the shared responsibility amount.
On all new divorces or divorce modifications beginning on January 1, 2019, alimony (also called maintenance or spousal support) is no longer deductible for the paying spouse or income to the receiving spouse.
For taxpayers who itemize, medical and dental expenses must be at least 7.5 percent of adjusted gross income (AGI) to be deductible.
There is a temporary reduction in tax rates through the end of the 2025 tax year. Most people will have a lower income tax obligation than they did a few years ago, before the TCJA.
The standard deduction increased as did the child tax credit. Some personal exemptions got suspended, and some deductions have new limits or got discontinued.
The TCJA changed these deductions: overall itemized deductions; medical and dental expenses; payment of sales tax, property tax, and state and local income tax; home mortgage and home equity mortgage interest; charitable contributions; moving expenses; casualty and theft losses.
Because of these changes, the Internal Revenue System (IRS) recommends that everyone review their payroll withholding amount at least once every year to avoid penalties and other unpleasant surprises if they do not have enough money withheld from their paychecks to cover their new tax obligations.
These multiple changes in the tax laws can be confusing and overwhelming. This article merely covers the high points of the TCJA. You might want to talk with Maryland tax attorney, Steve Thienel for more information.
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