Last Thursday the United States House Ways and Means Committee announced its latest version of the proposed tax reform bill. It presents vast legislative updates including the ability to file taxes on a postcard (yes, and only 15 lines for most of us). While this is still technically in a “draft” format (no vote has been made just yet), it gives us a picture of what the priorities are and will be for Congress in revising the tax code. Here’s a quick breakdown of what you need to know.
- 401(k) retirement plans would remain unchanged despite previous talks of reducing pretax contribution limits.
- Most deductions would be eliminated including income and sales tax deductions, while other deductions such as property tax (up to $10,000), charitable contributions, and mortgage interest (capped at $500,000) would remain.
- It would eliminate the estate tax by 2023, while doubling the current $5.49 million (per individual) exclusion amount until then.
- Tax brackets would be amended to rates of 12%, 25%, 35%, and 39.6%.
- It would reduce the corporate tax rate from 35% to 20%.
- The Alternative Minimum Tax would be eliminated.
- The child tax credit would be raised from $1,000 to $1,600.
- For corporations it would allow 100% expensing of qualified property.
- The limit for the cash method of accounting for businesses would increase to $25 million in gross receipts and such a method would be expanded to businesses with inventories.
- Corporate net operating losses deductions would be capped at 90% of taxable income.
- Corporate credits such as the work opportunity credit, employer-provided child care credit, and provision of access to disabled persons credit would be eliminated.
While there are certainly pros and cons to this proposed legislation, we all should remember that it is still simply, proposed. Before it will reach the U.S. Senate, there will no doubt be more debates, revisions, and eventually a vote (that must pass by majority) in the House. Only then will it go to the Senate floor for more debate, discussion, and vote (that again must pass by majority), so stay tuned as we follow how this may impact you, your family, and your business.
Our attorneys are here to help evaluate your tax planning and provide strategic advisory services for both your estate and business.