A few weeks ago, Congress passed H.R.1, a tax reform bill known as the Tax Cuts and Jobs Act. Its full title is “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” On Dec. 22, President Trump signed the bill into law.
As busy season approaches, it’s important that CPAs are aware of how this bill affects their clients. Some provisions apply retroactively, including reducing the threshold for deduction of medical expenses from 10% to 7.5% of adjusted gross income (AGI) for a two-year period beginning in 2017. This means some clients may be able to deduct more from their 2017 taxes or qualify for the deduction for the first time.
Individual tax rates changed, effective 2018-2025 tax years. These are now set at 10%, 12%, 22%, 24%, 32%, 35% and 37%. The IRS will issue guidance soon, meaning we could see changes to paychecks as early as next month. Business clients could also see their tax rate lower with the new flat 21% corporate tax rate. Previously the corporate rates ranged from 15% to 38% and were graduated based on taxable income.