Landmark Tax Reform in the U.S: The Tax Cuts and Jobs Act

written on behalf of Feigenbaum Law

The Republican’s Tax Cuts and Jobs Act (TCJA) was enacted into law last week, with timing intended to comply with the President’s promise to have a tax bill signed before Christmas of this year.

The TCJA is a $1.5 trillion overhaul that will introduce the first widespread changes to the U.S. tax code in more than 30 years. After first receiving Senate approval with a 51 to 48 vote, the TCJA was passed by the House of Representatives in a 224-201 vote on December 22. It will take effect on January 1, 2018 with few retroactive provisions.

Changes Under the Act: Corporate Tax

Corporations will see the biggest benefits under the TCJA, with drastically reduced corporate tax rates, favourable treatment of multi-national corporations, and incentives for American companies to bring back off-shore revenues.

Major changes under the Act include:

• Reduction of the corporate income tax rate from 35% to 21%;
• Introduction of a 100% dividend tax exemption on the foreign income of domestic corporations (as long as those corporations own at least 10% of the foreign subsidiary);
• Deemed repatriation tax on foreign deferred income of American corporations (15.5% for cash, 8% for illiquid assets);
• Repeal of the corporate alternative minimum tax (AMT);
• 20% tax deduction on pass-through business income for small business owners.

Changes Under the Act: Personal Tax

• Retention of the modified individual AMT with higher exemption amounts and phase-out thresholds;
• Temporarily reducing the top individual tax rate from 39.6% to 37%;
• Revision of other individual income tax rates and brackets (10%, 12%, 22%, 24%, 35%, and 37%);
• The standard deduction for individuals increased to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers;
• Taxpayers can continue claiming a deduction for a combination of local and state taxes (SALT), but up to a newly introduced maximum of $10,000.

The changes to the individual tax rates as well as the higher standard deductions will expire in 2025.

The TCJA also essentially eliminates the Affordable Care Act (i.e.Obamacare) by reducing the individual mandate to zero. Taxpayers will no longer face a tax penalty if they fail to maintain a minimum level of health insurance.

As we head into 2018, we will continue to follow further developments with respect to the TCJA. In the meantime, if you have questions about personal or corporate tax planning, and how it may be affected by the new legislation, contact Feigenbaum Law. We offer customized tax and financial planning solutions to clients in the U.S., Canada, and around the globe. Contact us online or at (416) 777-8433 or toll-free at (877) 275-4792 to learn about how we can help with cross-border tax planning.