Dec. 21, 2017
Just in time for Christmas, on a largely party-line vote, Congress passed its much anticipated $1.5 trillion tax bill. Whether one views it as a gift or a big lump of coal depends on where one sits, but that’s nothing new when it comes to changing the tax code. This is first major overhaul of the nation’s tax code since 1986 and the jury is still out as to what the impact of these changes will be. However, one thing is for certain—in the months and years ahead, it will keep our tax attorneys very, very busy.
Highlights of the Bill
Keep a look out for an upcoming OSBA quick webcast opportunity in early January to learn in more detail the ins and outs of the bill from OSBA tax law experts. In the meantime, here are some highlights1
- Cuts corporate tax rates from 35 to 21 percent starting next year
- Provides a 20% deduction for business expenses for pass through entities, though it would not apply to those making more than $315,000 or $157,500 for single filers (more on this from the ABA below)
- Changes the way multinational corporations are taxed
- Preserves seven current tax brackets for individual filers and lowers (most) individual rates from 39.6%, 35%, 33%, 28%, 25%, 15%, and 10% to 37%, 35%, 32%, 24%, 22%, 12% and 10% respectively
- Nearly doubles the standard deduction for single filers from $6,350 to $12,000 and for married couples filing jointly from $12,700 to $24,000
- Eliminates personal exemptions
- Caps deductions for state and local taxes at $10,000
- Doubles the child tax credit for children under 17 and expands it to those with higher incomes (now up to $200,000 for single parents or $400,000 for married couples)
- Creates a new $500 temporary credit for non-child dependents
- Raises the exemption for the alternative minimum tax
- Lowers the mortgage interest deduction, though it will not impact current homeowners
- Maintains the student loan deduction (big sigh of relief from law students everywhere) and does not require graduate students to pay income taxes on tuition waivers
- Expands for two years the deduction for medical expenses
- Maintains the deduction for teachers who purchase supplies with their own money
- Maintains the ability for homeowners who sell their home for a profit to exclude up to $250,000 for single filers and $500,000 for joint filers from capital gains
- Allows 529 savings accounts to be used not only for college but for public, private or religious primary or secondary school as well
- Eliminates the deduction for alimony payments (applies to divorce/separations after Dec. 31, 2018)
- Eliminates the deduction for moving expenses (exception military)
- Significantly reduces the number of people who must pay the estate tax
- Eliminates the individual mandate under Obamacare, which penalizes those who do not have health insurance (goes into effect in 2019)
- And much more...
What About Law Firms?
The ABA has a nice summary of how
the final tax bill will impact lawyers. Its government affairs team had lobbied for law firms to get equal treatment and as such, be included in the tax relief provisions for pass-through entities, including partnerships, Subchapter S corporations and sole proprietorships. The House version of the bill would have excluded professional service businesses.
The final bill does allow for a 20 percent deduction for qualified business income from these entities, but it is phased out for owners of professional service businesses whose taxable income exceeds $315,000 for married individuals filing jointly or $157,500 for individuals. Higher earning partners will still benefit from the reduction in the top individual income tax rate (39.6 percent to 37 percent).
In addition, there is no requirement that high-income law firms or other professional service businesses use accrual accounting – another proposal the ABA has opposed for some time. Such a provision would have forced these firms to pay taxes on accounts receivable and other "phantom" income that they haven't and may never receive.
The Ohio House and Senate are in recess. Likewise, the OSBA Weekly Report will be on hiatus until after the first week of the year. Happy Holidays to all!
Tracking OSBA Legislation
As always, you can continue to track OSBA priority bills and bills we are watching via the Legislative section at www.OhioBar.org. 1 CNN Money