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Individual Provisions of The Tax Cuts and Jobs Act

The following summarizes the key provisions of the Tax Cuts and Jobs Act (the Act) as it relates to individual taxpayers.  It should be noted that most of the provisions affecting individuals will expire starting in 2026.

Tax Brackets.  While one of the initial goals of tax reform was simplification of tax rates, there are now seven tax brackets instead of six. 

  • The top bracket is now 37% (down from 39.6%) and takes effect at $500,000 for single individuals and $600,000 for married taxpayers filing jointly.
  • Estates and trusts are subject to only four rates, with the top rate of 37% taking effect at $12,500.
  • Children under the age of 19 (or who are full-time students under the age of 24) are generally still subject to the “kiddie tax;” however, this is no longer tied to the income of either parents or siblings. Unearned income of children will now be subject to tax at the same rates as trusts and estates.
  • Capital gains and qualified dividends will still be eligible for preferential treatment and subject to rates of 0%, 15% and 20%.  Unrecaptured section 1250 gain will continue to be taxed at 25%, while gain on the sale of collectibles will remain at 28%. 
  • These rates are permanent except for the kiddie tax provision which does not apply to taxable years beginning after December 31, 2025.

Personal Exemptions and Standard Deduction.  Personal exemptions have been “suspended” until taxable years beginning after December 31, 2025.  The standard deduction has been “temporarily” increased to $12,000 for individual filers and $24,000 for married taxpayers filing jointly.  The increased amount of the standard deduction expires for taxable years beginning after December 31, 2025. 

Individual Alternative Minimum Tax (“AMT”).  For taxable years beginning after December 31, 2017 and before January 1, 2026, the AMT exemption is increased to $109,400 for married taxpayers filing jointly or half that amount for married individuals filing separately and $70,300 for all others (other than estates and trusts).  The phase-out thresholds are increased to $1,000,000 for married individuals filing jointly and $500,000 for all other taxpayers.

Child Tax Credits.  The child tax credit has been increased from $1,000 to $2,000 per qualifying child.  Only $1,400 per child is refundable.  Children age 17 and older are not eligible.

  • A $500 non-refundable credit is available for other dependents.
  • These credits phase out beginning with adjusted gross income of $400,000 for married taxpayers filing jointly and $200,000 for all others.
  • This provision expires for taxable years beginning after December 31, 2025.

Earned Income Credit, Lifetime Learning Credit, American Opportunity Credit, Deduction for Qualified Tuition and Related Expenses.  No changes have been made to existing law.

Education Related Provisions.  These provisions include the following:

  • Parents can use up to $10,000 per year from a Section 529 college savings plan towards tuition and qualified expenses for public, private, or religious elementary and secondary schools. 
  • The exclusion from income of student loan discharges and cancellation have been expanded for certain classes of debt (does not apply to discharges of debt after December 31, 2025).
  • Distributions or rollovers can be made between a Section 529 college savings plan and an ABLE account for certain disabled individuals.

Deduction for Taxes Not Paid or Accrued in a Trade or Business.  Subject to the exception below, in the case of an individual, state, local and foreign property taxes and local sales taxes are deductible only when paid or accrued in carrying on a trade or business or in connection with an activity for the production of income (i.e., deductible in computing income on Form 1040 Schedules C, E or F).  An individual can deduct such property taxes if they are imposed on business assets, such as residential rental property.  Similarly, in the case of an individual, state and local income taxes are not deductible, subject to the exception.

The deductions for state and local property taxes (not paid or accrued in carrying on a trade or business or in connection with an activity for the production of income) and state and local income taxes (or sales taxes in lieu of income taxes) have been combined into a single deduction and limited to $10,000 in the aggregate ($5,000 for a married taxpayer filing separately).  Foreign real property taxes are not deductible under this exception. 

These rules apply to taxable years beginning after December 31, 2017 and before January 1, 2026. 

The conference agreement provides that prepayments for anticipated 2018 state and local income taxes made in 2017 are to be treated as made on December 31, 2018 and, therefore, are not allowed as deductions on a 2017 return.

Home Mortgage Interest.  The deductibility of interest on current mortgages of up to $1,000,000 ($500,000 in the case of married taxpayers filing separately) of principal indebtedness remains.  However, in general, for new mortgages entered into between December 15, 2017 and December 31, 2025, this limit is reduced to $750,000 ($375,000 for married taxpayers filing separately).  For taxable years beginning after December 31, 2025, the limit reverts to $1,000,000 ($500,000 for married taxpayers filing separately), regardless of when the indebtedness was incurred. The deduction for home equity interest is suspended, effective for taxable years beginning after December 31, 2017 and before January 1, 2026.

Charitable Contributions.  The income-based percentage limit for certain charitable contributions by an individual taxpayer of cash to public charities and certain organizations is increased from 50% to 60% of adjusted gross income, effective for charitable contributions made in taxable years beginning after December 31, 2017 and before January 1, 2026.

Medical Expenses.  There is a temporary reduction in the medical expense deduction floor to include costs that exceed 7.5% of adjusted gross income (rather than the 10% under current law).  This applies for taxable years beginning after December 31, 2016 and before January 1, 2019.

Alimony Payments.  The deduction for alimony is repealed (as well as the inclusion in income of alimony received).  This provision is effective for any divorce or separation instrument executed after December 31, 2018, subject to rules governing modifications.

Moving Expenses.  Subject to a limited exception, this deduction is suspended, effective for taxable years beginning after December 31, 2017 and before January 1, 2026.  The exclusion from gross income and wages for qualified moving expense reimbursement (except for certain Armed Forces-related moving expenses and reimbursement) is also suspended, for taxable years beginning after December 31, 2017 and before January 1, 2026.

Personal Casualty and Theft Losses.  Effective for losses in taxable years beginning after December 31, 2017 and before January 1, 2026, this deduction is repealed except for losses incurred as a result of certain federally declared disasters.  Also, special relief rules apply with respect to 2016 major disasters, as to personal casualty losses and the use of retirement funds.

Miscellaneous Itemized Deductions Subject to 2% Floor.  All miscellaneous itemized deductions subject to the 2% floor under current law are repealed, for taxable years beginning after December 31, 2017 and before January 1, 2026.

Limitation on Itemized Deduction (3% Limitation).  The 3% limitation is repealed, for taxable years beginning after December 31, 2017 and before January 1, 2026. 

Affordable Care Act Individual Shared Responsibility Payment.  Under the terms of the Affordable Care Act, individuals must be covered by a health plan that provides at least a specified minimum coverage or be subject to a tax (penalty) for failure to maintain the coverage (often referred to as the “individual mandate”), subject to certain exemptions.  The requirement for this payment is eliminated, i.e., would reduce the amount of the shared responsibility payment to zero.  This applies to health care coverage status for months beginning after December 31, 2018.

Estate and Gift Tax Exemption.  The estate and gift tax exemption is doubled, accomplished by increasing the basic exclusion amount from $5 to $10 million.  The $10 million exclusion amount is indexed for inflation after 2011 ($10.98 million for 2017).  The proposal is effective for decedents dying, generation skipping transfers and gifts made after December 31, 2017.  The increase in the basic exclusion amount expires for decedents dying and gifts made after December 31, 2025. 

Why Your CQ is Just as Important as Your IQ (and EQ)

Cultural intelligence is increasingly important for business success.

By Richard Levychin, CPA, CGMA

Many factors contribute to professional success. Hard work is one, but it is not enough. Having a high IQ combined with hard work is no longer enough.

Having a high EQ, which stands for emotional quotient and measures one's ability to connect to people on an emotional level, combined with hard work and a high IQ used to be enough, but it is also no longer sufficient to lead to professional success.

Today's and tomorrow's professionals will also have to own a high CQ, a measure of cultural intelligence and the ability to interact comfortably and successfully with other cultures. Studies have shown that people with a high CQ perform better on multicultural work teams than those with a low CQ. A study published in 2011 in the Journal of Social Issues found that cultural intelligence was a stronger predictor of the cross-border effectiveness of Swiss military leaders than either general intelligence or emotional intelligence.

The person deciding whether you get access to your next opportunity, be it a job offer, project, financing, or something else, may have a different cultural background than yours. Do you possess a high enough CQ to engage with him or her in such a way that distinguishes you from your competition and gets you the opportunity?

As business becomes more global, CPA firms and other business entities will begin to measure a prospective candidate's cultural intelligence as a way of determining if he or she can engage with clients or customers who are from different cultures.

The primary purpose for improving CQ is to increase a firm's revenue. To implement a platform that encourages increasing the CQ of a firm's professionals for any purpose other than one that is directly tied to a significant positive impact on the firm's profit-and-loss statement will run out of steam quickly. The business case for CQ ends with a positive return on investment.


Several years ago I was referred to a well-known and powerful synagogue in Stamford, Conn. When I went to the synagogue, I was the only person of color in the building. I went to meet with the synagogue's rabbi and financial officer and before entering the rabbi's offices donned a yarmulke. The three of us then engaged in a 30- to 45-minute conversation on Jewish culture and the history of the synagogue before discussing the synagogue's specific business issues. I ended up closing the business.

A few weeks later I met with the managing partner of a midsize law firm who had been born in Israel and had served in the Israeli army. I happened to mention that that synagogue was a client. That literally was the icebreaker of the meeting. I ended up with a referral to a client of theirs in the airline industry that became a public company audit client of our firm, as well as a technology company whose principals were also from Israel and also became an audit client.

Possessing cultural intelligence, particularly as it relates to Jewish culture, was probably the differentiating factor that put me ahead of my competition in securing that business. I have had similar success meeting with decision-makers who were black, Asian, female, gay, Hispanic, or combinations of the above.

Having a high CQ also comes into play when attracting quality talent. Today's up-and-coming professionals want more cultural diversity in both their personal and business lives. And they also want their places of work to be culturally diverse. To attract and retain the quality of talent that can interact in a global marketplace, firms will need to increase their CQ so that they can speak to and attract a larger number of quality professionals. The more people you are exposed to, the better chance you have to hire the right staff members.

So how does one develop and improve his or her CQ?

Accounting is a profession that combines continued learning and application of that learning. Cultural intelligence cannot be learned. The road to cultural intelligence starts with unlearning the unconscious biases that we have developed and embedded into our belief systems over time as they relate to other cultures (see "How to Counteract Unconscious Biases"). Unlearning involves creating a state called "no mind," which is based on being able to interact with others without having assumptions about who you think they are playing in the background of your thoughts while you engage with them.


I believe that to authentically engage in the practice of "no mind" one needs to first acknowledge that maintaining such a state permanently is impossible. In other words, you cannot just simply flip an "off" switch and have unconscious biases go away forever. You can only maintain this state for periods of time.

Despite its name, the concept of "no mind" is a form of mindfulness. As you probably know, the practice of mindfulness has been around for a while. However, it is a practice. It is not a "perfect." And when you don't practice the state of "no mind," all you can do is work harder to do better next time. Even the most evolved person has unconscious biases. Realize that you have unconscious biases and there are times that they will influence your actions and decisions, and that is part of being human. Acknowledge it when it happens from a very human space, and then learn the lesson that the opportunity of screwing it up afforded you, and then move forward. 

I recently served on the AICPA's National Commission on Diversity & Inclusion. I introduced a session called "Conversations About Race" that was led by an interracial married couple. Within the session participants were matched with other accounting professionals from different cultures. Within these groups they were put through a series of exercises that allowed everyone to interact from this place of "no mind." After the exercises the session leaders engaged in a conversation about cultural diversity. The participants were highly engaged in the conversation and participated enthusiastically. By first actually engaging with someone of a different culture from the space of "no mind," participants had the physical experience of what this felt like. This provided the necessary relativity of what the opposite would look like.

The concepts of cultural intelligence discussed here focus on creating a platform of experiential learning where all cultures participate together and interact directly. These platforms create experiences of what it feels like to be in diverse environments and, for those who choose to engage in these types of practices in their firm, recommend that measurement of success be tied directly to the firm's profit-and-loss statement, specifically to how increased CQ contributes to increased revenue, increased staff retention rates, and lower labor costs.

Soft skills and team-building courses combined with content that focuses on cultural diversity are good starts toward the unlearning process and developing a higher CQ. But, like anything else, mastery comes from practice. And practice consists of a professional's willingness to consistently enter situations that include people from different cultures and engage in deep conversations and interactions with them, with an eye toward creating the state of "no mind." The more you engage in these types of interactions, the more key cultural nuances you will learn and the higher your CQ will become.


The Tax Consequences of Dealing in Cryptocurrency

The coolness factor of digital currency is being closely scrutinized by one of the least coolest agencies on the planet: The Internal Revenue Service. Given the speed at which these currencies have caught on — Bitcoin was released only in 2009 — the IRS hasn’t quite kept pace. They issued basic guidelines in 2014 for digital currencies, but tax experts say some of the rules are subject to interpretation.

In 2016 the IRS made it clear that it was searching for cryptocurrency tax evaders: The agency sent a broad request to Coinbase, one of the larger cryptocurrency exchanges in the United States, requesting records for all customers who bought digital currency from the company from 2013 to 2015. Coinbase balked, but a court ruled that it had to provide the records of roughly 14,000 customers, fewer than 1 percent of its patrons, who made transactions involving more than $20,000 of virtual currencies.

So, come April people who have bought and sold cryptocurrency such as Bitcoin will be expected to report any profits on their federal tax returns. And considering digital currency’s wild increases in value in 2017, there are probably many people who incurred gains or losses for the first time. But how much tax you owe will depend on how and when you acquired the digital currency.

Here are some basics about the tax implications of virtual currency:

I sold digital currency last year. What does that do to my tax return?

If you are holding digital currency as an investment, any gains or losses on the sale are treated as capital assets like a stock or bond. The gain or loss is calculated against the market value of the currency when you acquired it (your basis).

If you held the currency for more than a year, you qualify for the less onerous long-term capital gains rates (generally 0, 15 or 20 percent). Short-term gains, from digital coins held for a year or less, are taxed as ordinary income.

As on the stock market, losses can be used to offset capital gains, subject to certain rules, and losses that are not used to offset gains can be deducted — up to $3,000 — from other kinds of income. Unused losses can be carried over to future years.

I’ve successfully ‘mined’ digital currency. Now what?

All cryptocurrency transactions are recorded in a public ledger, which is maintained by a decentralized network of computers. Mining refers to the process in which new digital currency coins are created and then awarded to the computers that are the first to process these transactions coming onto the network. The people whose computers do this most quickly collect a fresh helping of cryptocurrency.

These virtual miners must report the fair market value of the currency (on the day they received it) as gross income and are ultimately required to pay federal, state and most likely self -employment taxes, assuming that the mining constitutes a trade or business.

What are the tax consequences of being paid in digital currency?

Receiving wages from an employer in a virtual currency is like being paid in dollars: it is taxable to the employee, must be reported by the employer on a Form W-2 and is subject to FICA, and federal and state income tax withholding. Independent contractors paid in digital currency must also treat that as gross income and pay self-employment taxes.

What if I paid someone in cryptocurrency for their services?

When you pay an independent contractor in excess of $600 for services performed for your “trade or business,” that should be reported to the IRS and the person receiving the payment for an amount equal to the value of the cryptocurrency when paid.

Can I reduce my tax bill by donating my cryptocoins?

Only people who itemize their tax returns can deduct their charitable donations.

For those who itemize their deductions it may be possible to directly donate their cryto currency just as they can directly donate, for example, highly appreciated stock. Just as long as the charity accepts it.

For example, Fidelity Charitable, a donor-advised fund, allows people to give money, take a tax deduction in the same year, and then invest and allocate the money to select charities over time. Fidelity Charitable works with Coinbase, the exchange, to immediately turn the Bitcoin or Ether into cash, which is then invested as its donor wishes.

Will I receive any tax forms such as 1099s from my exchange?

Generally speaking, brokers and exchanges are not yet required to report cryptocurrency transactions to the IRS., as they do when you sell a stock at a profit or loss (and you receive a 1099-B or a 1099-DIV for a mutual fund).

But you will need to keep track of every move you make. Coinbase, for example, refers you to your account transaction history for records to compute your gains and losses; it also provides customers a “cost basis for taxes” report.

How did the new tax bill affect digital currency?

The bill eliminated what some interpreted to be a tax break for virtual currency holders. Under the old rules, some cryptocoin investors applied a legal maneuver often used with real estate investments to defer their capital gains. Under what is called a 1031 exchange, taxpayers can sell one property and defer taxes as long as the proceeds were reinvested in a similar, or “like-kind,” property and met certain requirements.

The IRS didn’t say this strategy could be used with virtual currencies, but some tax experts argued that it was a reasonable — albeit debatable — interpretation since the coins were considered property. Now that the tax legislation limits the use of 1031 exchanges to real estate, this strategy no longer applies. That is if it ever did.

20% Pass Through Deduction Available for Select Owners of LLCs,
S Corporations, Partnerships and Sole Proprietorships Under New Tax Act

The Tax Cuts and Jobs Act (TCJA) creates a brand-new tax deduction for owners of pass-through entities, including partners in partnerships, shareholders in S corporations, members of limited liability companies (LLCs) and sole proprietors.  However, this part of the tax code is so complex that even tax experts are challenged by it.

To begin, owners of pass-through entities are effectively taxed on earnings at individual tax rates similar to the way corporate owners are taxed on wages. Under the TCJA, tax rates for individuals are generally lowered over seven brackets, featuring a top tax rate of 37%. In contrast, C corporations will be taxed at a flat rate of 21%, which might be considerably lower than a business owner’s individual rate.

To balance things out, lawmakers have provided a deduction of up to 20% for pass-through entities on “qualified business income” (QBI), subject to certain limits and restrictions. QBI is generally defined as net income from your business without counting amounts in the nature of compensation (W-2 wages and guaranteed payments from LLCs and partnerships), in addition to excluding any investment income from the pass-through entity. Note that QBI is figured separately for each business activity rather than on a per-taxpayer basis.

But there are two main hurdles for claiming the full 20% deduction (referred to as “the deduction” throughout this article). The deduction may be reduced or even eliminated under a test for “specified service businesses” and a “wage and capital” limit.

  1. Specified service businesses: This includes virtually every occupation that provides a personal service other than engineering and architecture. If your taxable income exceeds a threshold of $157,500 for single filers and $315,000 for joint filers, the deduction is reduced pro-rata under the “phase-in rule.” The phase-in is complete when income reaches $207,500 for single filers and $415,000 for joint filers. Above these upper thresholds, you get no deduction.
  2. Wage limit and capital limit: The deduction is limited to the greater of (a) 50% of W-2 wages for your business or (b) the sum of 25% of W-2 wages and 2.5% of the unadjusted basis of all qualified business property (i.e. the cost basis of depreciable property available for use in your business). This limit is phased in pro-rata based on the same income thresholds as the ones stated above for personal service businesses. Once you exceed the upper threshold, the phase-in of the limit is complete.

Taxpayers who have income below the lower income threshold ($157,500 for single filers and $315,000 for joint filers) have no worries at all. They are entitled to the full deduction. However, individuals in certain service professions that are traditionally high-paid may not qualify for any deduction. The deduction for taxpayers in other businesses can vary widely.Business that qualify for the deduction means any trade or business other than any trade or business involving the performance of services in the fields of health, law,accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees. However, it does not include engineering or architecture.So if you don’t qualify for the deduction because you are a personal service business the trick would be to tax plan to get your income to be below the income threshold amounts above.

In addition, the deduction can’t exceed your taxable income for the year (reduced by net capital gain). If the net amount of your QBI is a loss, you can carry it forward to the next tax year.

The wage limits rules are designed to curb abuses, such as having business owners who do substantial work artificially reclassifying wages as QBI eligible for the deduction. Nevertheless, taxpayers may be tempted to establish themselves as independent contractors, further increasing the number of conflicts with the IRS on this issue. Independent contractor status has already been a point of contention in recent years.

The wage limit component discussed above presents issues for independent contractors, sole proprietorships and single member LLCs that are above the income thresholds of $157,500 for single filers and $315,000 for joint filersand that have no W-2 wages in that it eliminates the availability of the deduction all together.  One of the solutions to this would be to shift to an S corporation and re-characterize some of your compensation as W-2 wages.  

The 2.5% of the capital limit component discussed above presents a lucrative tax break for some, including wealthy owners of commercial property. This opens the deduction up to commercial property businesses, where there aren't a lot of workers, but there is a lot of valuable property around.  As discussed above, the pass-through caps can be eligible for the 20-percent deduction based on a formula: 50 percent of employee wages paid; or 25 percent of wages plus 2.5 percent of the value of qualified property at purchase, whichever is greater.  The idea is for these entities to use the sum of the '2.5 percent rule' plus 25 percent of wages to get the full 20-percent deduction.

In addition, the deduction is:

  • Done on a separate entity basis and not in the aggregate

  • Allowed for both regular and alternative minimum tax purposes

  • Allowed whether taxpayer is an active or passive owner in the business

  • Eliminated beginning after December 31, 2025

  • Available to both non-itemizers and itemizers.

With the C corporation tax rate lowered to 21% some lawmakers had predicted that the steep corporate tax cut would cause pass-through entities to convert to C corporations to take advantage of the lower rate.

That’s unlikely to come to pass, as S corporations, limited liability companies, and partnerships would likely continue to be advantageous structures for most businesses, despite the proposal to drop the corporate rate to 21 percent from 35 percent.  C corporations would face a lower rate under the tax plan, but C corporations face a second level of tax on the dividends distributed to investors. Pass-through status has become the entity of choice in recent decades because of the single layer of tax and a more malleable structure for distributing cash and assets.

These are just the basics on this complex new deduction. It is expected that the IRS will soon issue guidance for pass-through entities, especially regarding rules for re-characterization of wages. As the year unfolds, we will highlight strategies for maximizing the deduction under IRS-prescribed guidelines.