|Just before recessing for the holidays, Congress passed the Tax Cuts and Jobs Act—a comprehensive tax reform package including changes to the corporate and individual tax codes.
The overall corporate tax rate was lowered to 21 percent, while the individual rates were modified, dropping the top tax rate to 37 percent. The modifications to the individual rates will phase out in 2025, while changes to the corporate tax code are permanent.
Here are a few additional highlights most relevant to NGWA members:
- Small Business Expensing: The bill raises the cap on investments that can be expensed to $1 million, up from $500,000 in the existing tax code.
- Bonus Depreciation: The Tax Cuts and Jobs Act increases bonus depreciation to 100 percent—up from the current rate of 50 percent—for new, short-lived capital investments or “full expensing” for five years and then phases out over the subsequent five years.
- Pass-Through Businesses: Small and pass-through businesses that pay taxes as individuals are subject to a new 20 percent deduction. However, this doesn’t apply to all in the service industry. Many consultants, like lawyers and doctors, are not excluded from claiming the deduction, whereas engineers are eligible.
- Estate Tax: The exemption from paying an estate tax was doubled to roughly $12 million, up from the current level of $5.6 million. However, the estate tax will remain in place.
- Graduate Student Penalties: Previous versions of the tax bill would have penalized students pursuing a graduate degree. Fortunately, those provisions were removed from the final piece of legislation.
- Renewable Energy Provisions: Those provisions related to encouraging the use of renewable energy technologies—like sections 25D, 48, and 179 of the tax code—were all removed from the final package. While disappointing, there is a separate effort to move this package of energy provisions forward in January.
The changes to the tax code will go into effect for the 2018 tax year. A summary of the entire Tax Cuts and Jobs Act can be found here.
The Tax Cuts and Jobs Act should lower taxes for small, family-owned businesses, as well as individuals. The plan is intended to spur economic growth, which could lead to greater investment in infrastructure. On the other hand, the high price tag of the legislation could also lead to cuts to federal spending programs down the road.