In an Information Release, IRS has announced that in many cases, taxpayers can continue to deduct interest paid on home equity loans under the recently enacted Tax Cuts and Jobs Act.

Taxpayers may deduct interest on mortgage debt that is "acquisition debt." Acquisition debt means debt that is: (1) secured by the taxpayer's principal home and/or a second home, and (2) incurred in acquiring, constructing, or substantially improving the home. This rule hasn't been changed by the Tax Cuts and Jobs Act.

Under pre-Tax Cuts and Jobs Act law, the maximum amount that was treated as acquisition debt for the purpose of deducting interest was $1 million ($500,000 for marrieds filing separately). Under the Tax Cuts and Jobs Act, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately).

Under the Tax Cuts and Jobs Act, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, there is no longer a deduction for interest on "home equity debt." The elimination of the deduction for interest on home equity debt applies regardless of when the home equity debt was incurred.

Many of you are wondering how the new tax rate changes will impact you. Obviously we can't answer that off the top of our heads as each person's situation is different, and in many cases experts are still trying to figure out how the changes will play out. One of the biggest changes is the corporate tax rate reduction to a maximum of 21% versus the maximum tax rate for individuals being around 37%.

The new tax legislation becomes effective January 1. That means many business owners are now considering whether to reorganize themselves as C corps.

Here's why: Most U.S. small businesses currently don't qualify for the reduced corporate tax rate. The majority of small enterprises are structured as pass-through entities such as limited liability companies or S corporations, where profits are taxed according to the owner's personal rate. While there is some tax relief in the bill for those pass-through firms—including a temporary ability to deduct up to 20 percent of income—many could access the permanent cut by converting to full-blown C corporations.

It may technically be an escape clause, but experts say it's one that startups are smart to take advantage of in 2018.

Trump tax plan 2017 Both the House and Senate have passed their versions of President Trump's tax bill, and there are many similarities, including the limiting of itemized deductions to mortgage interest, charitable contributions, and property taxes (up to $10,000), and the doubling of the estate, gift, and generation-skipping transfer tax exemptions from $5.6 million to $112 million in 2018. These versions also differ in a number of ways. These differences will have to be resolved through a legislative conference committee. Some differences should be easy to reconcile, but resolving others is expected to take time and effort.

What to Do Now

It's rarely a good idea to make big changes while the legislative process is still ongoing, but waiting until legislation is signed may not provide enough time to make changes before the end of the year. Still, there are things that you can do now that can offer protection against what may be coming in 2018, with no or minimal negative consequences, regardless of what's included in the final bill. Taxpayers should start planning now and consult with their tax advisors to determine the actions that make sense for them in light of their unique circumstances.

2018 Tax ChangesMost of you are aware that a new tax law was recently passed.  Most of the changes relate to 2018 and beyond - here are just a few of the ones most like to affect individuals.

Standard Deduction Increased

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the current-law additional standard deduction for the elderly and blind. 

Personal Exemptions Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero.

US tax changes for 2017

The Social Security Administration (SSA) announced that the maximum earnings subject to the Social Security component of the FICA tax will increase from $127,200 to $128,700 for 2018. This means that for 2018, the maximum Social Security tax that employers and employees will each pay is $7,979.40 ($128,700 x 6.2%). A self-employed person with at least $128,700 in net self-employment earnings will pay $15,958.80 ($128,700 x 12.40%) for the Social Security part of the self-employment tax. The Medicare component remains 1.45% of all earnings, and individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly, $125,000 for married filing separately) will pay an additional 0.9% in Medicare taxes. 

For 2018, the Social Security Administration (SSA) has announced that cash wages paid by an employer for domestic service in the employer's private household is subject to FICA tax (often referred to as nanny tax) if the amount of wages paid during the year is more than $2,100. This is up from $2,000 for 2017.

Other provisions are increasing for inflation in 2018, including the personal exemption, which increases from $4,050 in 2017 to $4,150 for 2018. The standard deduction for married taxpayers filing joint returns increases to $13,000, $300 more than in 2017. It also increases slightly for single taxpayers and married taxpayers filing separately to $6,500. The standard deduction increases for heads of household, from $9,350 in 2017 to $9,550 in 2018.