2021 Tax Updates

Complete Analysis of the Tax Cuts and Jobs Act

Individual Tax Return Changes

  • Standard deduction increased
    • Married $25,100
    • Head of household $18,800
    • Single filers $12,550
  • Personal exemptions suspended
  • Capital gains provisions conformed
    • The Act generally retains present law 0%, 15%, and 20% tax rates on net capital gains and qualified dividends
  • Deductions for personal casualty & theft losses suspended
  • Child tax credit increased
    • Partial credit for non-child dependents
    • For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the child tax credit is increased to $2,000
  • State and local tax (SALT) deduction limited
    • A taxpayer may claim an itemized deduction up to $10,000
      • Up to $5,000 for married taxpayers filing separately
    • Mortgage interest deduction limited
      • Tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for home mortgage interest is limited to interest on up to $750,000 ($375,000 for married taxpayers filing separately) of acquisition of indebtedness
      • Deduction for interest on home equity indebtedness is suspended
      • New lower limit doesn’t apply to acquisition indebtedness incurred before Dec. 15, 2017
    • Medical expense deduction threshold temporarily reduced from 10% to 7.5%
    • Individual charitable contribution deduction limitation increased from 50% to 60%
    • Alimony deduction by payor/inclusion by payee suspended – for any divorce or separation agreement executed after Dec. 31, 2018
    • Miscellaneous itemized deductions suspended
    • Exclusion for moving expense reimbursements suspended
    • Moving expenses deduction suspended
    • Repeal of ACA individual mandate – After 12/31/18
    • Individual AMT retained, with higher AMT exemption amounts
    • Estate and gift tax retained, with increased exemption amount
      • Estate exemption goes to $11.2 million

Business Tax Changes That Affect Most Of Us

  • Corporate tax rates reduced
  • For tax years beginning after Dec. 31, 2017, the corporate tax rate is a flat 21% rate
  • Corporate alternative minimum tax repealed
  • Increased Code Section 179 expensing
  • For property placed in service in tax years beginning after Dec. 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million, and the phase-out threshold amount is increased to $2.5 million.
    • For tax years beginning after 2018, these amounts (as well as the $25,000 sport utility vehicle limitation) are indexed for inflation Temporary 100% cost recovery of qualifying business assets
  • Luxury automobile depreciation limits increased
    • For passenger automobiles placed in service after Dec. 31, 2017 for which the additional first-year depreciation deduction under Code Sec. 168(k) is not claimed, the maximum amount of allowable depreciation is increased to: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.
    • For passenger automobiles placed in service after 2018, these dollar limits are indexed for inflation.
    • For passengers autos eligible for bonus first-year depreciation, the additional first-year depreciation allowance remains at $8,000.
  • Recovery period for certain real property improvements is shortened
  • Limits on deduction of business interest
    • For tax years beginning after Dec. 31, 2017, every business, regardless of its form, is generally subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income.
  • Employer’s deduction for fringe benefit expenses limited
  • Nondeductible penalties and fines and No deduction for amounts paid for sexual harassment subject to nondisclosure agreement
  • Deduction for local lobbying expenses eliminated
  • New credit for employer-paid family and medical leave
  • Pass-Throughs
    • New deduction for pass-through income
    • For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act adds a new deduction for noncorporate taxpayers for qualified business income–also referred to as the “pass-through deduction.” The deduction reduces taxable income, rather than adjusted gross income (AGI), but is available to taxpayers who take the standard deduction. The deduction is generally 20% of a taxpayer’s qualified business income (QBI) from a partnership, S corporation, or sole proprietorship. QBI is defined as the net amount of items of income, gain, deduction, and loss with respect to the trade or business.

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