new tax law graphicWithout question, the 2017 Tax Cuts and Jobs Act is the most comprehensive update to the United States Tax Code in over three decades. The new law lowers taxes on individuals and businesses with the intent of growing the economy. The law contains more changes than we can cover in a simple blog post, but one thing is clear: It’s going to be more important than ever before for individuals and small businesses to plan ahead to manage their taxes.

Here are just a few of the major changes contained in the new law.

The corporate tax rate is cut to 21 percent. This is a permanent change. In the past, American businesses have had the highest corporate tax rates among developed countries. The new rate is expected to stimulate new investment which will, in turn, benefit workers through both job growth and higher earnings. Job growth will likely lead to an increase in union membership, particularly if Congress can pass a bill to re-build the country’s infrastructure.

20 percent pass-through deduction. This change is not as simple as it appears. The purpose of having it at all was to keep the tax advantage enjoyed by sole proprietors and pass-through entities (S corporations and Limited Liability Partnerships) at around 10 percent. But claiming this deduction is going to require some effort, as the new law requires navigating a tangle of limitations, thresholds, and phase-ins and phase-outs.

Lower Individual Tax Rates. The law lowers rates for almost every tax bracket. We will still have seven tax brackets, but they will have higher income thresholds and lower rates.

The new standard deduction actually combines what was the standard deduction and personal exemption into one larger deduction – $24,000 for married joint filers and $12,000 for single filers. We will assist you in determining whether to take the expanded deduction or continue to itemize. We expect some taxpayers will simply take the new standard deduction.

$2,000 Child Tax Credit. The child tax credit (CTC) is doubled from $1,000 to $2,000 per child. This larger CTC gradually phases out for married filers whose incomes exceed $400,000 which is an increase from $110,000 under current law. This new, larger credit offsets the elimination of the personal exemption for dependents. If your family is in the 25 percent tax bracket or lower, this acts as an expansion of the tax subsidy for children.

State and Local Tax Deduction. Taxpayers who itemize their taxes will be able to deduct up to $10,000 of state and local property taxes and income taxes (or sales taxes) paid.

New Limit on Mortgage Interest Deduction. The new tax law does not change the treatment of existing mortgages for most taxpayers. Interest that you paid on a home mortgage for a principal residence up to $750,000 will still be deductible if you itemize. The existing law had a mortgage limit of $1 million, but this was changed to offset not being able to deduct interest on second homes.

College Savings Accounts Expanded. 529 college savings accounts—named after their section of the Internal Revenue Code—have been expanded to allow parents to save for K–12 and homeschooling expenses. As a result, parents will now have a greater chance to pay for education options apart from those offered by the local public school system.

These are just a few highlights from the new 2017 Tax Cuts and Jobs Act. One thing remains clear: The IRS tax code is still extremely complex and navigating it is difficult. That’s why we recommend you engage a tax professional to help you with your family and/or business taxes. Failing to do so could cost you hundreds or even thousands of dollars.

Unless you have the simplest type of return imaginable, the days of do-it-yourself tax preparation are long gone.

We’ve been offering a wide range of accounting services to individuals, small and medium-size businesses, nonprofit and government entities for more than 30 years. If you have a tax matter to discuss, or if you’re looking for a more consultative tax planning partner, please give us a call at 216-521-2100. We’d like to hear from you!