1. Tony Vallejo, CPA (805)845-2046 tony@tonyvallejo-cpa.com
2018 Tax Reform
Tony Vallejo, CPA
(805)

2. Overview The most significant changes to tax law in the last 30 years.
Most people will end up saving taxes, I estimate 95% of my clients project to save at least some $.
Wage earners are already seeing it, since withholding tables adjusted in February.
Changes affect both personal and corporate taxes.
Personal tax law changes will expire by 2025 without an act of congress, corporate changes are permanent.

3. Personal tax law changes
Lowers individual tax rates
Increases the standard deduction
Eliminates personal exemptions
Expands and increases the child and dependent tax credits
Reduces the amount of allowable indebtedness on mortgages of personal residences.
Imposes limitations on deductions of state and local taxes.
Adjusts Alternative minimum tax.
Taxation treatment of alimony

4. Business/Corporate Tax Changes
Reduction in C-Corporate tax rate
Eliminates AMT
Pass through entities generally get deduct 20% of net income
Foreign source dividends can be exempt from U.S. taxation
Repatriation of foreign earnings

5. Alimony
Pre alimony and separate maintenance payments were deductible by the payor spouse and includible in income by the recipient spouse.
2018 law reverses this treatment, making alimony and separate maintenance payments non‐deductible to the payor spouse and non‐taxable to the receiving spouse.
The effective date is delayed by one year, generally being effective for any divorce or separation instrument executed after December 31, 2018.

6. Personal exemptions
Under 2017 tax law allowed a $4,050 deduction, subject to phase‐out.
Eliminated in 2018; merged with higher standard deduction.

7. Standard Deduction Currently $12,700 ($6,350 if single)
Increase to $24,000 ($12,000 if single), enhanced for elderly and blind.
Net result will be a decrease in number of tax payers using itemized deductions.

8. Business tax law changes
Reduces C-corp tax rates
Eliminates AMT tax
Pass through entities are eligible for a 20% deduction of taxable income (subject to phase out).
Excludes foreign source dividends from US income tax.
On time repatriation of foreign earnings

9. Individual tax rates Revised Original 10% $0-$9,525 $0-$19,050 12%
Marginal Tax Rate
Single
Married Filing Jointly
10%
$0-$9,525
$0-$19,050
12%
$9,525-$38,700
$19,050-$77,400
15%
22%
$38,700-$82,500
$77,400-$165,000
25%
$38,700-$93,700
$77,400-$156,150
24%
$82,500-$157,500
$165,000-$315,000
28%
$93,700-$195,450
$156,150-$237,950
32%
$157,500-$200,000
$315,000-$400,000
33%
$195,450-$424,950
$237,950-$424,950
35%
$200,000-$500,000
$400,000-$600,000
$424,950-$426,700
$424,950-$480,050
37%
Over $500,000
Over $600,000
39.60%
Over $426,700
Over $480,050

10. Child/Dependent tax credits
2017 tax law allowed $1,000 credit, per qualifying child subject to phaseout beginning at $110,000 (married) and $75,000 (single taxpayers).
$2,000 per qualifying child $500 per non‐child dependent; subject to phase‐out beginning at $400,000 (married) and $200,000 others.
Helps offset loss of personal exemptions and expands dependents eligible for credit.

11. Mortgage interest deduction
In 2017 were allowed to deduct mortgage interest on up to $1,100,000 in mortgage indebtedness (including home equity lines)
Mortgage interest deduction: $750,000 limit on acquisition indebtedness retained (principal or secondary residence); deduction for home equity loan repealed
Still a work in progress (appears home equity lines are now deductible but still limited to $750,000).
Pre-2018 mortgages not effected.
Does not effect rental properties

12. State and local taxes
Pre 2018 there was no limit on the amount of state income tax, property tax, DMV fees, etc that could be deducted.
Deduction for state and local income, sales tax and real property taxes limited to $10,000 in aggregate ($5,000 for married filing separately).
I believe this will have a much bigger impact.
This change was the reason that many felt the law was punitive to the “Blue” states.

13. Alternative Minimum Tax
Pre Parallel tax calculation with top rate of 28% and $84,500 exemption for married taxpayers ($54,300 others); phase out of exemption begins at $160,900 for married taxpayers ($120,700 others)
Retains and modifies AMT; exemptions raised to $109,400 (married) and $70,300 (others); phaseout of exemption begins at $1 million for married taxpayers ($500,000 others)

14. C-Corporate tax rate 2018 law creates a flat 21% tax rate Pre 2018
Taxable Income Range
Marginal Corporate Tax Rate (2017)
$0-$50,000
15%
$50,000-$75,000
25%
$75,000-$100,000
34%
$100,000-$335,000
39%
$335,000-$10,000,000
$10,000,000-$15,000,000
35%
$15,000,000-$18,333,333
38%
$18,333,333 and above
2018 law creates a flat 21% tax rate

15. Alternative Minimum Tax
Parallel tax calculation with top rate of 20%
Eliminated for Corporate tax filers

16. Pass through entities
Pre-2018 Subject to tax at individual rates up to 39.6%.
An individual taxpayer generally may deduct 20% of domestic qualified business income from a partnership, S corporation, or sole proprietorship.
There are some very complicated phaseout rules that may eliminate this deduction.
This is a big deal!
May lead to fundamental changes in tax planning especially in relation to entity selection.