The Tax Cuts and Jobs Act (TCJA), aimed at reducing the US’s federal tax burdens, came into effect on January 1, 2018.

The most important aspects of the TCJA concern the reduction of the federal tax rate, the reduction of individual income tax rates and the increase in tax deductions.

Corporate tax cuts are permanent, while other changes will remain in effect until 2025 (including the new standards for individual income taxes).

Individual Income

The progressive structure of 7 tax brackets has remained in place, with a relative percentage reduction. The maximum rate has decreased from 39.6% to 37%. The minimum rate remains 10%. However, certain deductions are not available any longer.

Corporate Income

The previous four brackets were abolished and a single corporate income tax rate of 21% was introduced. Simultaneously, the c.d. Alternative Minimum Tax (AMT) has been abolished.

Greater Incentives for Investing in the USA

Accelerated depreciation was introduced, attributed fully to investments in equipment put into service between September 27, 2017 and December 31, 2022. Starting in 2023, the deduction will be 80%, and it will decrease by 20% in the following years.

The deduction, up to a maximum of 1 million dollars, is now available for expenses on cars, company machinery, office equipment and computers. This favors small businesses and start-ups that may be subject to an immediate deduction.

Other news worth mentioning is: (a) the introduction, in 2018, of the limit to carry forward losses up to 90% of taxable income, which will be reduced to 80% starting in 2022. (b) the abolition of the Carryback.

Regarding transparent entities, the deduction on the profits distributed to shareholders has been increased to 20%. This includes partnerships, LLC, real estate companies, hedge funds and private equity funds.