New Tax Law in-effect for 2018

January 4, 2018

On Dec. 22, President Donald J. Trump signed into law the Tax Cuts and Jobs Act (H.R. 1), following passage earlier that week by the Senate and House—both along party lines. The bill is now in-effect for tax years 2018 and thereafter. Absent from the signing ceremony were the various Members of Congress who ushered the bill through their respective chambers, driven by the president’s promise to sign the bill into law before the Christmas break.

President Trump also on Dec. 22 signed a stopgap spending measure to fund the government through Jan. 19. The continuing resolution (CR) made no major changes to spending levels and punted on many key issues, setting the stage for some major battles when lawmakers return to the Capitol in January, specifically on immigration and disaster aid.

The Tax Cuts and Jobs Act signed into law is the most significant overhaul of the U.S. tax code in more than 30 years. The new law will give tax cuts to corporations and small businesses, lower rates for most American households through 2025, and will modernize U.S. international tax rules.

Among the key provisions in H.R. 1:

  • Corporate federal tax rate permanently lowered from 35 percent to 21 percent;
  • A new 20 percent deduction for certain pass-through business income through 2025;
  • Temporary tax rate cuts on nearly all individuals through 2025, namely the top rate is lowered from 39.6 percent to 37 percent;
  • Standard deduction for individuals nearly doubles from $6,500 for individuals to $12,000;
  • State and local tax deduction temporarily capped—was previously unlimited—at $10,000 through 2025;
  • Corporate alternative minimum tax (AMT) is repealed and the individual AMT is modified with higher exemption amounts and phase-out thresholds;
  • New rates for a repatriation ‘toll tax’ (15.5 percent for cash and cash equivalents and eight percent for illiquid assets);
  • Temporarily doubles and indexes for inflation the estate tax exemption up to $10 million until 2025; and
  • Individual mandate portion of the Affordable Care Act is eliminated in 2019.

NSBA supported H.R. 1 and applauds lawmakers and the president for enacting legislation that addresses some key priorities for America’s small-business owners.

While the final bill offers considerable tax relief to most small businesses, it falls short in two key areas: simplification and debt reduction. Complexity in the tax code has outpaced the actual financial burden of federal taxes in terms of small-business burden, and NSBA’s members routinely select “reduce the national deficit” among their top five priorities for Congress.

NSBA called on lawmakers to support the legislation, and also to commit to pursuing additional tax reform measures that will ensure small-business parity, tax simplification and long-term economic stability.