Congressional Republicans and the Trump Administration have unveiled what they are calling a “unified framework” for tax reform. While the specifics will likely change as it makes its way through the congressional process, we wanted you to be aware of some of the provisions that could have a direct impact on you.
The tax reform plan is the result of several months of discussion among House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, White House adviser Gary Cohn, House Ways & Means Committee Chairman Kevin Brady (R-TX), and Senate Finance Committee Chairman Orrin Hatch (R-UT).
Individual tax reforms:
- Increased standard deduction; elimination of personal exemptions and additional standard deductions for older/blind taxpayers. The plan would increase the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers.
- Reduced number of tax brackets. The plan would reduce the number of tax brackets from seven to three: 12 percent, 25 percent and 35 percent.
- Child tax credit enhanced and non-child credit provided. The plan states that it significantly increases the child tax credit, but doesn’t specify the increased amount. The first $1,000 of the credit would be refundable, as under current law. Additionally, the income levels at which the credit phases out (currently, $110,000 for joint filers, $75,000 for unmarried individuals, and $55,000 for married taxpayers filing separately) would be increased, to unspecified amounts. There would also be a non-refundable credit of $500 for “non-child dependents.”
- AMT repealed. The individual alternative minimum tax (AMT) would be repealed.
- Itemized deductions largely eliminated; home mortgage interest and charitable contributions retained. Most itemized deductions would be eliminated, including the state and local tax deduction, except for tax incentives for home mortgage interest and charitable contributions.
- Work, education and retirement benefits retained. The plan states that it would retain “tax benefits that encourage work, higher education and retirement security.” However, the tax-writing committees are encouraged to make these tax benefits simpler and more effective.
- Catch-all. The frameworks notes that “[n]umerous other exemptions, deductions and credits for individuals riddle the tax code” and that many will likely be repealed in order to make the system “simpler and fairer.”
- Estate and generation-skipping transfer taxes repealed. The plan calls for the repeal of both the estate tax and the generation-skipping transfer tax.
Business tax reforms:
- New top rate for small pass-throughs. The maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations would be 25 percent. The plan “contemplates that the committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
- New corporate tax rate. The framework would reduce the corporate tax rate to 20 percent, down from the current top rate of 35 percent. It also aims to eliminate the corporate AMT. Further, the committees “also may consider methods to reduce the double taxation of corporate earnings.”
- Full expensing for five years. The framework would allow businesses to immediately write off the cost of new investments in depreciable assets other than structures that are made after Sept. 27, 2017, for at least five years.
- Interest expense deductions. The deduction for net interest expense incurred by C corporations would be partially limited. The tax-writing committees are instructed to consider how interest should be treated by non-corporate taxpayers.
As always, we will continue to monitor the tax reform measure at it makes its way through Congress and keep you advised of any changes that will affect your bottom line.
Source: RIA Checkpoint