Overview of the Business Tax Changes in the Tax Cuts &
Jobs Act TCJA
Overview of the Business Tax Changes in the Tax Cuts &
Jobs Act TCJA
By : T . Mark Rush , CPA | Partner Ham , Langston & Brezina , LLP mrush @ hlb-cpa . com
Part 3 of a Series on the new Tax Cuts and Jobs Act
Here ’ s a look at some of the more important elements of the new tax law that have made changes to the Alternative Minimum Tax ( AMT ) that take effect beginning in 2018 .
Before the TCJA , a second tax system called the alternative minimum tax ( AMT ) applied to both corporate and non-corporate taxpayers . The AMT was designed to reduce a taxpayer ’ s ability to avoid taxes by using certain deductions and other tax benefit items . The taxpayer ’ s tax liability for the year was equal to the sum of ( i ) the regular tax liability , plus ( ii ) the AMT liability for the year .
A corporation ’ s tentative minimum tax equaled 20 % of the corporation ’ s “ alternative minimum taxable income ” ( AMTI ) more than a $ 40,000 exemption amount , minus the corporation ’ s AMT foreign tax credit . “ Small ” corporations -- those whose average annual gross receipts for the prior three years didn ’ t exceed $ 7.5 million ($ 5 million for startups )— were exempt from the AMT . Very complex rules applied to the deductibility of minimum tax credits All in all , the AMT was a very complicated system that added greatly to corporate tax compliance chores .
* Corporate AMT repeal . The TCJA repealed the AMT on corporations . Conforming changes also simplified dozens of other tax code sections that were related to the corporate AMT . The TCJA also allows corporations to offset regular tax liability by any minimum tax credit they may have for any tax year .
* Temporary easing of individual AMT . The act doesn ’ t repeal the AMT for individuals , but it does increase its exemption amounts for tax years 2018 through 2025 , making it less likely to hit at lower income levels . Before the TCJA , individual AMT exemptions for 2018 ( as adjusted for inflation ) would have been $ 86,200 for marrieds filing jointly and surviving spouses ; $ 55,400 for other unmarried individuals , $ 43,100 for marrieds filing separately . Those exemption amounts would have been reduced by 24 % of the amount by which the individual ’ s AMTI exceeded .
…$ 164,100 for marrieds filing jointly and surviving spouses ( completely phased out at $ 508,900 );
…$ 123,100 for unmarried individuals ( completely phased out at $ 344,700 ); and
…$ 82,050 for marrieds filing separately ( completely phased out at $ 254,450 , with an additional add-back to discourage separate filing by marrieds )
* Exemption increases and higher phaseouts . The act increases the individual AMT exemption amounts for tax years 2018 through 2025 to $ 109,400 for marrieds filing jointly and surviving spouses ; $ 70,300 for single filers ; and $ 54,700 for marrieds filing separately . These increased exemption amounts are reduced ( not below zero ) by 25 % of the amount of the taxpayer ’ s alternative taxable income above $ 1 million for joint returns and surviving spouses , and $ 500,000 for other taxpayers except estates and trusts . All of these amounts will be indexed for inflation after 2018 under a new measure of inflation that will result in smaller increases than under the method previously used .
For trusts and estates , the base figure AMT exemption of $ 22,500 , and phase-out threshold of $ 75,000 , remain unchanged .
If you were subject to the individual AMT in the past , you may be able to reduce your wage withholding or pay reduced amounts of estimated taxes going forward due to the exemption increases and higher phaseout levels .
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