Temporary or Permanent? What You Need to Know About Recent Tax Reform

Discover All the Recent Tax Reform Details with Help from Fair, Anderson & Langerman

This year, the IRS and Congress have unveiled tax reform, some of which is permanent, and some is temporary. Decisions you make this year could affect what happens when some of the reforms expire in 2025. Take a look at the below guide to help you and your tax consultant plan for Tax Day 2018.

2018 Permanent Tax Reform Provisions for Individuals 

All of the changes listed below take effect for the 2018 tax year (unless otherwise noted) and are not scheduled to expire in 2025:

  • Alimony

    No deductions for alimony payments are required by post-2019 divorce agreements.

  • Roth IRA conversions

     Starting this year, there will no longer be reversals of Roth IRA conversions. 

  • Affordable Care Act

    Starting in January 2019, you won’t have to worry about paying a penalty for failing to have “minimum essential coverage” under the ACA.

  • 529 distributions

    You can now take tax-free distributions of up to $10,000 out of your 529 account to cover qualified K-12 school expenses at public, private and religious schools. 

  • Gifts to colleges

    You can no longer write off charitable gifts to colleges if your gift allows you to purchase tickets to athletic events at the school.

2018 Permanent Tax Reform Provisions for Businesses

  • Corporate income tax

    There’s now a flat 21 percent income tax on corporations. 

  • Corporate alternative minimum tax

    This tax has now been eliminated for good.

  • Section 179

    The rules for first-year Section 179 depreciation write-offs are permanently more generous.

  • Fleet expenses

     The federal government is offering more generous depreciation deductions for business fleets of cars, light trucks and light vans. 

  • Property and farming equipment depreciation

    Your property, farming machinery and equipment will now depreciate at faster rates. 

  • Cash-method accounting

    The eligibility requirements to use cash-method accounting and simplified inventory accounting procedures has been generously expanded.

  • Construction companies

     Those with eligible long-term contracts will enjoy favorable accounting method changes.

  • Exchanges of personal property

     Favorable treatment under Section 1031 for the exchanges of personal property has been permanently eliminated. 

  • Business entertainment

     Deductions for business-related entertainment expenses have been reduced or eliminated altogether. 

  • NOLs

     The rules related to deducting net operating losses (NOLs) have been made stricter. 

  • Partnerships for tax purposes

    Many of the provisions regulating S corporations, partnerships and LLCs that are treated as partnerships for tax purposes have been made (excluding the 20 percent of qualified income). 

  • Intangible assets

    Self-created intangible assets can no longer be treated as capital gains assets. This applies to inventions, models, designs, secret formulas, and even some processes. 

  • Long-term capital gains treatment

    There’s now a three-year holding period rule you need to know about. 

  • Compensation deductions

    There’s a new $1 million annual limit on compensations deductions for amounts paid to principal executive officers. 

  • R&D expenses

    Beginning Jan. 1, 2022, there are new requirements for specified R&D expenses to be capitalized and amortized over five years (or 15 years if the R&D is conducted outside of the United States.

2018 Temporary Tax Reform Provisions for Individuals

  • Tax rates

    The federal income tax rates have been temporarily reduced. 

  • Alternative minimum tax rules

    These rules will be more favorable. 

  • Standard deductions

     The list has been expanded. 

  • Child tax credits

    It’s gone up to $2,000 per qualifying child and higher income thresholds have been established.

  • Dependents

     You can now get a credit of up to $500 for dependents who are not qualifying children. 

  • Medical expenses

     The threshold for itemized medical expenses has been lowered. 

  • Itemized deductions

     The phaseout rule that can reduce some itemized reductions for higher-income people has been eliminated.

  • Adjusted gross income

    There’s a temporary 60 percent adjusted-gross-income limit for itemized deductions for cash donations. 

  • Student loans

     Students loans forgiven due to illness, death or disability will be tax-free. 

  • Gift and estate tax exemptions

    The federal gift and estate tax exemptions have been increased. 

  • Personal and dependent exemption deductions

    These have been eliminated.

  • Itemized deductions

    They’ve been limited (along with miscellaneous expenses and home mortgage deductions). 

2018 Temporary Tax Reform Provisions for Businesses 

  • Depreciation

    There’s a temporary 100 percent bonus depreciation for qualified business assets (expires after 2022) and bonus depreciation with declining percentages for 2023 (through 2026). 

To fully understand all the ways tax reform – permanent and temporary – can affect you, contact us at 702-870-7999 today.