The Final Word on The New Income Tax Plan
After much discussion and speculation, Congress has now passed the much-anticipated tax revision bill. We have made an effort to keep you informed throughout this process, as various components of the plan were proposed and debated. Now, we bring you the final word on some of the bill’s highlights, particularly those which will affect our business clients as well as all individuals in California.
The corporate tax rate. For our business clients, this could be the most important part of the new tax plan. The corporate tax rate was slashed, down to 21 percent from its previous 35 percent. The idea behind this change is a hope that businesses will reinvest their now-higher profit margin into new infrastructure, equipment, and employees. We shall see if that promise holds true.
Pass-through tax rate. If your business is structured as a pass-through entity, you know that the business itself does not pay income taxes. Rather, the income “passes through” to the owner(s), who pay the taxes based upon their individual income tax rate. The new tax plan allows those owners to deduct 20 percent of their pass-through income.
If you’re a business owner, you need to contact our business planning attorneys for more information on the new tax plan. We can help you identify the ways in which the new plan could help or hurt you, and examine options for restructuring or other ideas to take advantage of the new regulations.
Deductions for taxpayers.
Under the new tax plan, standard deductions for single taxpayers have been doubled from $6,000 to $12,000. Married (filing together) taxpayers will received a doubled standard deduction of $24,000. Theoretically, more taxpayers might opt for their standard deductions, rather than itemizing returns. But of course, we will have to wait and see how this plays out.
For decades, itemized tax deductions have encouraged taxpayers to spend their money in certain ways – for example, charitable giving, or the purchase of a home. Under the new law, many deductions are eliminated or scaled back.
Your state and local tax deduction will be capped at $10,000 (not a big deal for most people living in, say, Alabama, but a very big deal for Californians).
The mortgage interest deduction has been scaled back, as well. Now you can only deduct the interest on the first $750,000 of a home purchased in 2018 or later. Interest on second-home mortgages cannot be deducted at all, and the deduction for home equity lines of credit is also extinct now.
Some homeowners’ old tax rules are “grandfathered” in, while others are not. For more information on how the new income tax plan will affect you, with regard to real estate or your business, call our tax, business and real estate attorneys.