Tax Reform 2.0 Plan Approved by House Chairman
On September 14, 2018, the House Chairman approved plans for U.S. Tax Reform 2.0 after House Republicans advanced another round of legislative efforts to solidify the new tax code. The package includes three bills that are intended to perpetuate the successes of the Tax Cuts & Jobs Act, and will bring permanent individual and small business tax cuts into law under the Act passed last December (2017). Currently, many individual provisions are set to expire at the end of 2025. Collectively, the bills are intended to make it easier for families and businesses to save for retirement and support the growth of business startups. This article aims to provide a summarized overview of the three bills; however, much remains to be seen regarding the finalization of the Tax Cuts & Jobs Act provisions, and updates will be provided as further progress is made. Click here for the full press release from the Ways and Means Committee.
1. PROTECTING FAMILY AND SMALL BUSINESS TAX CUTS ACT
The Act includes key changes, which involve making the following items permanent law:
• Tax rate changes
• Cap on state & local taxes paid deduction (currently $10,000)
• Limitation on deduction for qualified residence interest
• Increased standard deduction and child tax credit
• Deduction for qualified business income of pass-through entities
• Increased exemption for alternative minimum taxes
• Elimination of personal exemptions
The Act passed a vote in the House Ways and Means Committee, 21 to 15. The Joint Committee on Taxation estimates that making these measures permanent would cost the government $630 billion in federal revenue over the next decade.
2. FAMILY SAVINGS ACT
A key change under this Act focuses on reform to retirement accounts. It includes eliminating the contribution age limit for IRA accounts (currently 70.5 years old). It would also eliminate the required minimum distribution withdrawals for those with less than $50,000 in their accounts. In addition, the Act would allow for penalty-free withdrawals for certain child-care related costs.
The Act encourages the use of Universal Savings Accounts. Contributions into a Universal Savings Account are taxed, but earnings would grow tax-free and would be easier to withdraw than a traditional 401(k) or other retirement account.
3. AMERICAN INNOVATION ACT
This final act is intended to support entrepreneurship, and help American startup business grow. It would allow businesses to deduct their start-up and organizational costs. The deduction would be limited to the lesser of the business start-up expense or $20,000. The $20,000 would be reduced for businesses with more than $120,000 in expenses. Any excess start-up and organizational expenditures would be amortized ratably over 180 months.
FOR MORE INFORMATION
The introduction of this Tax Reform 2.0 plan update arrives ahead of the midterm elections. Although this new plan has been approved by the House Ways and Means Committee, it still faces approval by the Senate – who isn’t expected to approve the proposed plan until after the November elections. We will continue to monitor updates regarding this new plan, but 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.
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.