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Regulation- US Tax- AICPA 2019

The tax cuts and Jobs act makes significant changes to Tax code.These changes will be tested in Regulation section of CPA USA exam, testable from 1st Jan, 2019, which requires you to understand current tax law. Important changes which are done are as follows :

  1. Elimination of personal exemptions :This is a huge change for the individual taxpayer. Before the TCJA, you could claim a $4,050 deduction from your taxable income, which essentially meant, if you made $44,000 in 2017, you could claim a $4,050 deduction and only be taxed on $39,950. The new law completely does away with the personal exemption. Now, without considering other deductions, that $39,950 you made is taxed at the full amount.

  2. Estate, gift, and generation-skipping transfer tax :The Act doubles the gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption to about $11,200,000 in 2018. This provision sunsets and reverts to pre-existing law after 2025.

  3. Raising the standard deduction substantially.For example, the standard deduction for single taxpayers went from $6,350 in 2017 to $12,000 under the new law and for married filing jointly have been increased to $18000.

  4. Itemized Deduction :Under Pre-existing law, medical expenses were allowed to the extent expenses exceed 10% of AGI, however under new law it is decreased to 7.5%. State and local taxes was previously allowed without any limit, however under new law, it is limited to $10000 ($5000 for married filing separately).

  5. Introduction of a flat 21 percent corporate tax rate. This constitutes a tax cut for any business with income greater than $50,000, and a tax increase for businesses with income less than $50,000.

  6. Health insurance individual mandate :The Act eliminates the requirement that individuals must be covered by a health care plan that provides at least minimum essential coverage or pay a penalty tax (the individual shared responsibility payment) for failure to maintain the coverage. The provision is effective for months beginning after December 31, 2018.

  7. Increasing the 50% first-year bonus depreciation to 100%. This will apply to qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The deduction for Section 179 is taken before any bonus depreciation, and any deduction for bonus depreciation is taken before the regular depreciation is recalculated

  8. Reduction of people paying the Alternative Minimum Tax (AMT): The AMT exemptions for individuals were increased to reduce the amount of people subject to the AMT.

  9. Kiddie tax :Instead of taxing most unearned income of children at their parents’ tax rates (as under pre-existing law), the Act taxes children’s unearned income using the trust and estate income tax brackets. This provision sunsets and reverts to pre-existing law after 2025.

  10. Child tax Credit :The maximum child tax credit was $1,000. The child tax credit was phased out if modified adjusted gross income exceeded certain amounts. If the credit exceeded the tax liability, the child tax credit was refundable up to 15% of the amount of earned income in excess of $3,000 (the earned income threshold). However under the new law the maximum child tax credit is increased to $2,000. A nonrefundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of the credit is $1,400, indexed for inflation. The amount at which the credit begins to phase out is increased, and the earned income threshold is lowered to $2,500. The changes to the credit sunset and revert to pre-existing law after 2025.

  11. There are few more amendments in
    • Maximum deduction for Sec. 179 property
    • Taxable year of inclusion
    • Cash method of accounting
    • Inventory accounting

  12. We recommend the candidates to take the Regulation section before Jan 2019 , as the new forms are not out yet and the blueprint for Regulation section is not yet out by AICPA, its always good to write an exam which we are already familiar with, after you become CPA- you always have a mandatory CPE which would push you to learn the new tax and gain the latest updates too on the Tax code.

Sripal Jain