Planning for a Tax Code Overhaul
After more than 30 years with few changes, personal and corporate tax policy is on the verge of a major overhaul. Lead by the GOP, the tax bills advanced in the House and progressing in the Senate have the potential to dramatically restructure tax brackets, deductions, credits and more. Given the timing, magnitude and likelihood of its potential passage, it is important to understand what is at stake.
While the details of the competing bills will ultimately have to be finalized in conference committee and passed by both chambers of Congress, there are quite a few areas within each bill that are either the same or similar in nature.
Understanding the House and Senate Provisions
November 16th marked the passage of the House version of the GOP tax plan, referred to as the Tax Cuts and Jobs Act. On the same day, the Senate bill came out of committee, and it is quickly winding its way through the review, debate and amendment process with a vote appearing imminent. Based on publicly announced timelines, the approved bill may be ready for President Trump’s signature as early as the end of December or early 2018.
Here is a brief overview showing major areas of commonality between both bills, along with areas of contrast:
• The standard deduction increases to $12,200 for singles and $24,200 for joint filers.
• Personal exemptions are eliminated.
• Retirement savings and charitable contributions deductions will be maintained.
• Corporate tax rates are reduced from a maximum of 39 percent to 20 percent.
House GOP Tax Plan
• The corporate tax rate is immediately reduced in tax year 2018.
• The pass-through rate for non-corporation businesses is calculated using a complex formula.
• The estate tax exemption is immediately doubled, with a gradual full repeal of the tax.
• The number of tax brackets shrinks from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent.
• Some deductions are cut, including mortgage interest.
• Key deductions remain, including property tax.
Senate GOP Tax Plan
• The corporate tax rate is reduced beginning in tax year 2019.
• The number of tax brackets remains the same.
• Tax rates are reduced throughout the plan, but are set to revert back to current rates in 2025.
• The Patient Protection & Portability Act’s (Obamacare) insurance mandate penalties are repealed.
Making Sense of What’s at Stake
While both bills have much in common, a few significant differences exist. In addition, there is no certainty that the reform will be passed, or that if it is passed will remain in the form same as proposed today.
As such, instead of focusing on the impact of all the potential changes, we instead recommend you begin the process of planning for potential outcomes and how they may affect you. We know this is especially challenging because details remain in flux, but a good first step is to contact your CPA or tax professional to visit with them about their understanding of the proposed changes and how they may impact your individual tax situation.
Potential recommendations can and will vary. For some it may be helpful to act proactively and potentially shift income (or expenses) between tax year 2017 and tax year 2018, while for others too much remains unknown to act.
We will continue to keep you abreast of developments out of Washington. In the meantime, if you need any guidance, don’t hesitate to reach out and we will work with our CPA strategic partners to determine an answer.
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