TAX BULLETIN 2018-1: TAX REFORM SIGNED INTO LAW
next $100,000 of taxable income for married filing jointly ($50,000 for others). The following is a simple example
for a pass-through entity.
EXAMPLE
H and W file a joint return on which they report taxable income of $200,000 (determined without regard
to this provision). H has a sole proprietorship that is a qualified business and is a “specified service business.” W is an employee and receives only W-2 wages from her job.
H’s qualified business income is $150,000. 20 percent of the qualified business income is $30,000. Because H and W’s taxable income is below the $315,000 threshold amount for a joint return, (i) the wage
limit does not apply to H’s qualified business, and (ii) the limitation applicable to specified service
businesses does not apply. H’s deductible amount for qualified business income is $30,000.
On their joint return, H & W would qualify for a $30,000 deduction, reducing their taxable income from $200,000 to $170,000. That taxable income would then be subject to regular income rates.
While upper-income wage earners in high-tax states generally do not fare well under the Act, taxpayers with
substantial income from pass-through businesses should see a tax benefit compared with current law, since the
weighted average rate of business income would be approximately 30%. Capital gains, dividends, and other
preferential income from a business would not be considered “business income” and would continue to be taxed
at preferential tax rates.
Under the initial Senate version, the pass-through deduction was not available to trusts or estates. Under the Act, however, trusts and estates can benefit from the pass-through deduction.
CORPORATE INTERNATIONAL TAXES
2017 Law
2018 Law
Worldwide with deferral available International Corporate Tax — Scope
100% of foreign-source portion of dividends paid by foreign corporation to U.S. corporate shareholder (that owns at least 10%) would be exempt from U.S. taxation
No
One-Time Deemed Repatriation of Foreign Earnings
U.S. shareholders owning at least 10% of a foreign corporation would be taxed on post- 1986 net foreign earnings and profits (15.5% on earnings and profits comprising cash or cash equivalents; 8% on remaining earnings and profits); may elect to pay tax over a period of up to 8 years, in annual installments that allow more to be paid at the back end
OTHER PROVISIONS
The Act has other provisions of note that are not included in the charts above.
e Roth recharacterization no longer allowed. Under 2017 law, if you converted a traditional IRA to a Roth IRA, you could “recharacterize” that conversion within certain time limits, in effect undoing it.
For tax years beginning after 2017, the Act repeals this rule, meaning you can no longer recharacterize
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