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What is the Tax Cuts and Jobs Act (TCJA)? What Does This Mean? Presented by Natalie Rasmussen, EA – GreenGrowth CPAs
Agenda About GreenGrowth CPAs ● What is the Tax Cuts and Jobs Act (TCJA)? ● Who does this affect and how? ● Comparative TCJA Tax Rates ● When does TCJA go into effect? ● What are Standard Deductions? ● Child Tax Credits ● Adjustments to Gross Income ●
Agenda Adjustments to Gross Income ● Itemized Deductions ● IRC 199A Small Business Deduction ● Shortcut Computations ● What does TCJA mean for Cannabis Companies ● Key Takeaways ●
GreenGrowth CPAs About Us: Involved in Cannabis Taxes since 2010 ● Enrolled Agent with 21 years in the tax industry ● Over 300 cannabis business clients ● Can help cannabis companies with taxes, business plans, licensing, audits and more ●
What is the Tax Cut and Job Act TCJA passed in December 2017 and made several significant changes to ● the Individual Income Tax. Changes include a nearly double standard deduction, new limitations on ● itemized deductions, reduced income tax rates, and reforms to several other provisions. Changes simplify the individual tax income by eliminating the need for ● millions of households to itemize their deductions
Who Does This Affect and How? Since the signing of the bill, we have observed the provisions which have become obvious that will be the most detrimental to a large number of taxpayers: Loss of exemptions for taxpayer who will continue to itemize ● Loss of exemptions for dependents under 17 ● Loss on unrestricted deduction for state and local taxes (SALT) ● Loss of equity debt interest deduction ● Loss of employee business expenses deduction ●
Who Does This Affect and How? On the other hand, there are several provisions that will be beneficial to a large number of taxpayers: Increased standard deduction ● Increased Child Tax Credit ● Section 199A 20% QBI deduction ● Expanded Section 179 and bonus depreciation rules ● Decreased tax rates ●
To start, here is your comparative TCJA Income Tax Rates:
Tax Rates 2018 The tax rate structure does NOT apply to taxable years beginning after ● December 31, 2025. The dollar amounts for bracket thresholds are all adjusted for inflation ● and then rounded to the next lowest multiple of $100 in future years. Unlike prior law, which uses a measure of the Consumer Price Index for ● All Urban Consumers (“CIP-U”), the new inflation adjustment uses the Chained Consumer Price Index for All Urban Consumers (“C-CPI-U”).
When Does TCJA Go Into Effect? TCJA took effect in January of 2018 and will expire in December of 2025. It maintains seven tax brackets, but temporarily adjusts the tax rates as follows.
What Are Standard Deductions? • A dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. • There is an additional standard deduction for individuals who are blind or age 65 or over. • You CANNOT take the standard deduction if you itemize deductions. • In addition, certain individuals cannot take a standard deduction or can take only a reduced standard deduction. • Tax payers can deduct the amount of the tax year's standard deduction on their tax returns or add up what they spent on tax deductible expenses for the year.
Standard Deduction Rates
Standard Deduction Rates
Child Tax Credits The TCJA temporarily increases the child tax credit to $2,000 per qualifying ● child (an individual who has not attained age 17 during the taxable year). The credit is further modified to temporarily provide for a $500 nonrefundable ● credit for qualifying dependents other than qualifying children. It should be noted that this provision generally retains the present-day ● definition of dependent.
Adjustments to Gross Income (Above-the-line Deductions/ AGI) Adjustments to income are specific deductions that directly reduce your total income to arrive at your AGI. Educator Expenses: deduction for educator expenses remains at $250 ($500 if both taxpayers - on a joint return are eligible educators). Under Pre-TCJA law, expenses that exceeded the limit could be claimed as miscellaneous itemized deductions subject to the 2% floor. Moving Expenses: TCJA eliminates the moving expense deduction, as well as the exclusion - from income for qualified moving expense reimbursements provided by an employer. The law retains the pre-TCJA deduction for moving expenses incurred by a member of the U.S. Armed Forces on active duty who moves pursuant to a military order.
AGI Alimony : Under TCJA, alimony is no longer deductible by the payor spouse, nor • included in the recipient spouse’s gross income for any divorce or written separation agreement executed after December 31, 2018. Grandfathered Payments: Alimony paid pursuant to a divorce or written • separation agreement in place on or before December 31, 2018, remains deductible by the payor spouse and included in the income of the recipient spouse. Time is of the essence: • In CA, there is a minimum 6 month waiting period from the time the divorce is • filed and when the date is finalized.
AGI- Alimony When filing, a court date must be scheduled to allow for enough time to get the court date ● If modifying an agreement, its best for payor to finalize the agreement prior to January 1, ● 2019, to avoid deductibility/taxability issue If a couple has court-ordered spousal support in place prior to their divorce being finalized, ● those payments will continue to be deductible.
AGI St Student Loans: ● The deduction for student loan interest is retained! ○ However, the COD (cancellation of debt) income from a student loan discharged on ○ account of death or total disability of the student is excluded from gross income, only if the discharge of indebtedness occurs prior to January 1, 2019.
Itemized Deductions Itemized deductions are comprised of various types of certain expenses that you may incur throughout the taxable year. Medical Expenses: TCJA retains the deduction for medical expenses and temporarily reduces the medical expenses 1. threshold back to 7.5% of AGI for 2017 and 2018 for all taxpayers. The threshold returns to 10% after 2018 for all taxpayers. Deduction for State and Local Taxes: Taxpayers may claim itemized deductions of up to $10,000 for the aggregate of 2. state and local taxes, as well as property taxes. For those married, but filing separately, deductions cannot exceed $5,000. Taxpayers may opt to deduct sales and use tax rather than income tax, which is also subject to a $10,000 limit. (popular in states with no state ○ income tax)
Itemized Deductions: For Example John is single and made the following state and local payments in 2017 and 2018:
Itemized Deductions Mortgage Interest: TCJA introduces new limits that provides for tax years beginning ● in 2018, but ends before 2026. May treat no more than $750,000 as acquisition indebtedness ($375,000 for ○ married but filing separately tax payers) Repeals the deduction for interest on home equity debt of up to $100,000, no ○ matter when the debt was incurred. Equity debt is nondeductible from January 1, 2018 through December 31, 2019. Grandfathered Debt: for indebtedness incurred on or before December 15, ○ 2017, the $1 M limitation is grandfathered in.
Itemized Deductions Charitable Contributions: TCJA increases the AGI limit from 50% to 60% for ● charitable contributions to 50% charities. Applies to contributions made in the tax years beginning December 31, 2017 and ● before January 1, 2026. Increase specifically for cash contributions ● Excess contributions may be carried forward for five years ●
Itemized Deductions Casualty Losses: No longer deductible under TCJA, except in the case of a presidentially declared ● disaster, which is a form of casualty loss. Miscellaneous Itemized Deductions: Were subject to 2% floor but have been repealed. ● Tax prep fees, unless able to allocate under Schedule C, E, F ○ Unreimbursed employee expenses, including: sales, travel, and entertainment expenses for ○ outside sales people, and entertainment industry expenses, including agent, attorney and publicist fees Home office for employees, union dues, out of pocket expenses, and uniforms- including Police ○ and Fire, construction workers. Continuing education expenses ○ Investment advisor fees or asset management fees, and ○ Attorney fees, among other. ○
Itemized Deductions: Misc. Deductions Prior to TCJA, employees could deduct business expenses that weren’t ● reimbursable by their employer as 2% miscellaneous itemized deductions if they were incurred or paid in the tax year, if it allowed the taxpayer to carry on in their trade, and of the expenses were ordinary and necessary. Under TCJA, this is eliminated and will affect the following industries that hardest: ● Sales ○ Fire and Police ○ Entertainers and Athletes ○ Employees with a home office ○
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