President Trump signed the Tax Cuts and Jobs Act (“TCJA”) into law on December 22, 2017, which brought many changes to the Internal Revenue Code (“IRC”). The changes made have affected many taxpayers in different ways. For example, corporations are happier with the lower corporate tax rate of 21%. Additionally, some may be happy with the removal of the Affordable Care Act provision, while others worried that this change would increase premiums and significantly reduce the number of people with coverage.
What is the “Sunset Date?”
Nevertheless, the TCJA created a “sunset” date, meaning an expiration date, for many of its provisions. Therefore, many of the TCJA provisions are only temporary. Because there are many provisions subject to change, this post will discuss only some of those provisions subject to the sunset tax date.
What are the Tax Rates & Deductions?
Currently, there are seven different tax rates for individuals, the lowest being 10% and the highest falling from 39.6% to 37%. Additionally, there are four tax rates for estates and trusts: 10%, 24%, 35%, and 37.
The law also changed standard deduction. Standard deduction starting in 2018 was $24,000 for married persons filing jointly, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. Standard deduction is adjusted for inflation in tax years 2019-2025. No changes were made to the additional standard deduction for the elderly and blind. Personal exemptions deductions are currently completely eliminated.
Certain taxpayers may also benefit from the Qualified Business Income (“QBI”) deduction under IRC Section 199A. QBI allows for a deduction that is equal to the lesser of 20% of QBI (not including net capital gains) or 50% of W-2 wages paid by the taxpayer. However, the deduction cannot exceed the taxpayer’s taxable income, reduced by their net capital gain. Additionally, excess business losses are not allowed for that tax year but are treated as part of the taxpayer’s net operating loss (“NOL”) in subsequent tax years. Taxpayers have an excess business loss if their losses from all trades or business exceeds income from the trades or business by more than $250,000 ($500,000 for taxpayers filing jointly), adjusted for inflation in 2019 – 2025.
Credits can Expire…
Additionally, some credits are also subject to expiring. Credits are dollar for dollar reductions to your taxable income. Currently, the child tax credit is currently $2,000. Taxpayers are also allowed a $500 credit for each qualifying dependent who is not a qualifying child.
Furthermore, deductions for state and local sales taxes, and state, local, and foreign property taxes are only allowed when paid or accrued in carrying on a trade or business or income-producing activity. However, state and local income, war profits, and excess profits cannot be deducted. With that being said, however, taxpayers may claim itemized deductions up to $10,000 ($5,000 for married filing jointly) for the aggregate of (1) state and local property taxes not paid or accrued in carrying on a trade or business or income producing activity; and (2) state and local income, war profits, and excess profits taxes paid or accrued in the tax year.