The Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law on December 22, 2017. Most provisions of the new law affecting individuals and businesses went into effect on January 1, 2018, including new tax brackets and new standard deductions. One of the most dramatic changes is the approach to corporate taxes. TCJA lowers the corporate income tax rate to 21% and moves the United States from a worldwide to a territorial system of taxation. Under the worldwide system, U.S.-based corporations pay the corporate income tax on all income, regardless where the income is earned. Taxes on foreign earnings are paid when the assets are “repatriated” back to the U.S. Under a territorial tax system, the U.S. will tax only the U.S. income of a corporation and exempt foreign income. Certain changes will start at a later date, including those impacting alimony and healthcare penalties (both 2019). Other components will be short term in nature, such as increased medical expense deductions (2018-2019). Additionally, individual and pass-through tax cuts are temporary and become net tax increases starting in 2027, while the corporate tax cuts are permanent. A summary of a few key elements can be found in the appendix.
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