Tax Update: Tax Cuts and Jobs Act
Ways and Means Committee Chairman Kevin Brady offered his second amendment to the Tax Cuts and Jobs Act on November 9, 2017, before the House committee voted to advance the tax reform bill. The amendment refines several provisions in the Tax Cuts and Jobs Act, and its targeted plans include helping American families, providing tax relief to small business start-ups, and increasing American competitiveness. More specifically, here are several points that the amendment contemplates:
- Preserving the adoption tax credit
- Preserving the moving expense tax deduction for military families
- Improving the program integrity of the Child Tax Credit
- Provision for a new, low tax rate of 9% for businesses earning less than $75,000 in income to be phased in over five years
- Modifying the treatment of S-corporation conversions into C-corporations
- Provision to help American’s with disabled children save for their future by allowing them to rollover excess assets from a tax-advantaged 529 savings account into an ABLE account
- Modifying the transition rules on the treatment of deferred foreign income by providing effective tax rates on deemed repatriated earnings of 7% on earnings held in illiquid assets and 14% on earnings held in liquid assets
The House bill still faces a hurdle in that it will be voted on next week by the House. The goal is to drive the legislation through Congress and get it to President Trump by Christmas.
Also on November 9, Senate Republicans released their plan for overhauling the tax code, proposing a one-year delay in the cutting of the corporate tax rate, while maintaining popular tax breaks used by middle-class households.
The Senate plan does maintain key differences from the proposed House bill. Here are some of the key highlights of the proposed Senate plan:
- Maintaining seven individual income tax brackets; a 12% bracket would replace the current 15% bracket, and the top rate would get cut slightly to 38.5%
- Maintaining the mortgage interest deduction on acquisition indebtedness, but repeals the deduction for interest on home equity indebtedness
- Eliminating federal itemized deductions for state and local taxes, and only allowing for deduction on individual’s Schedule C, Schedule E, or Schedule F on the individual tax return
- Reducing the corporate tax rate from 35% to 20% for tax years beginning after December 31, 2018
- Doubling the exemption for the estate tax, but not repealing this tax
The Senate tax plan proposal is scheduled for markup by the Senate Finance Committee on November 13, 2017. Given the passing of separate tax bills, lawmakers will have to reconcile them. Republicans have set a deadline for overhauling the U.S. tax system by year-end. Lawmakers are searching for ways to reduce the budget deficits created by their respective tax reform plans; budget deficits created by a bill need to comply with the budget rules. A tax proposal cannot add more than $1.5 Trillion in deficits over 10 years under budget guidelines recently set by the Senate and House. Currently the House plan would add $1.7 trillion in deficits over a decade.
FOR MORE INFORMATION
Here at FF&F we are committed to keeping a close watch on any and all regulatory and legislative changes that could affect our clients. We will continue to provide updates as the proposed reform plan reaches further development. We encourage you to contact us with any questions or concerns you may have related to these changes and how they might affect you individually. For such inquiries, or for information about our services, please contact us at firstname.lastname@example.org or (212) 245-5900.
- To read the Ways and Means Committee Press Release on this topic, click here.
- For a more detailed description of the Committee Chairman’s markups to this act from the Joint Committee on Taxation, click here.
Deven M. Conner, CPA, EA is a Tax Professional with FF&F. He is an IRS Enrolled Agent and has over 10 years of combined tax and public accounting experience comprised of family office groups, private equity firms, and forensic accounting. Deven has a strong background in individual, fiduciary, and partnership taxation. His diversified experience in the private and public sectors, which include a Big Four firm and top mid-size public accounting firm, serves as a solid foundation for his unique and comprehensive understanding of taxation.