Trump’s Tax Reform Plan, or not….

A few highlights of what is supposed to happen in the next month or so, and a crucial caveat: nothing is written in stone…. so, stay tuned.

In the past month, both the House Ways and Means Committee (“House”) and Senate Finance Committee (“Senate”) have proposed a tax legislative bill to revamp the current US tax code.  The House released its proposal on November 2; the proposal was passed in the House of Representatives after a vote on November 16.  The Senate released its proposal on November 10 and is scheduled to pass the bill to a full vote of the senate after returning from the Thanksgiving holiday.

We have received many requests to determine the impact of the proposed bills.  Both bills are complexed with a variety of changes for corporations, pass-through entities and individuals’ taxation.

Changes will affect deductions, repeal of the estate tax, repeal of the individual and corporate alternative minimum tax, and a shift to a territorial system for foreign-sourced income.

Below are selected highlights for both proposals related to corporate and individual income tax:

House Bill

Senate Bill

Corporate Income Tax

Flat tax rate of 20% effective
January 1, 2018.

Flat tax rate of 20% effective
January 1, 2019.

100% deduction for qualified
property placed into service for 5 years.

100% deduction for qualified
property placed into service for 5 years.

Alternative minimum tax would
be repealed.

Alternative minimum tax would
be repealed.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

The two-year carryback and 20-year carryforward periods would be eliminated,
allowing the NOL to be carried forward indefinitely.    The NOL deduction
would be limited to 90% of the taxable income.

Individual Income Tax

Tax brackets would be
reduced from seven to four.

Tax brackets would remain at 7, but the rates would be lower for most
brackets including

Rate

Single

Married filing jointly

Rate

Single

Married filing jointly

12%

Up to $45K

Up to $90K

10%

Up to $9,525

Up to $19,050

25%

$45K–$200K

$90K–$260K

12%

$9,525–$38.7K

$19,050–$77.4K

35%

$200K–$500K

$260K–$1M

22%

$38.7K–$70K

$77.4K–$140K

39.6%

Over $500K

Over $1M

24%

$70K–$160K

$140K–$320K

 

 

 

32%

$160K–$200K

$320K–$400K

 

 

 

35%

$200K–$500K

$400K–$1M

 

 

 

38.5%

Over $500K

Over $1M

Standard deduction increases to $12,200
for individuals, $18,300 for head of household and $24,400 for married
couples filing jointly

Standard deduction increases to $12,000
for individuals, $18,000 for head of household and $24,000 for married
couples filing jointly

Personal exemptions will be eliminated.

Personal exemptions will be eliminated.

State and Local Tax deduction will
be eliminated, with the exception of property taxes that can be deducted up
to $10,000.

State and Local Tax deduction will
be eliminated completely.

Mortgage Interest can be deducted on the
interest paid on the first $500,000 of mortgage debt.

Mortgage Interest can be deducted on the
interest paid on the first $1,000,000 of mortgage debt.

Medical Expense deduction will be eliminated.

Medical expenses above 10 percent of a
taxpayer’s adjusted gross income can be deducted.

Student Loan Interest deduction will be
eliminated.

Student Loan Interest can continue to be
deducted up to $2,500.

These proposals are not final and at this time it cannot be determined when or if either proposal will be passed. As noted above, there are key differences between the two bills that need to be resolved.  The bill can only be passed into law once both the house and senate pass identical bills.

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