Tax Reform Bill Announcement

House Republicans released their tax reform bill on Nov. 2 and it contains many provisions that have been discussed in the past and were included in the framework of the version released in September. While the bill is a step forward in the overall goal of tax reform, there is still a long way to go before comprehensive legislation is passed. We wanted you to be aware of some of the provisions included in this bill that may have particular interest for you and/or your business. They are as follows:

Business Tax Provisions

  • 25% tax rate on pass-through business income, excluding professional service firms such as doctors, lawyers, accountants, and others. Wages for business owners may either be 70% of total income, or a ratio based on the level of their capital investment.
  • 20% corporate tax rate.
  • Immediate deduction for the cost of new equipment, to be phased out in five years.
  • Elimination of the domestic production activities deduction, but retention of the research and experimentation credit, and the low-income housing tax credit.
  • Introduction of a territorial tax system, where foreign income earned by U.S. companies will be tax-free. However, in the future a 10% minimum tax will be imposed in order to prevent companies from moving income abroad.

Individual Tax Provisions

  • Individual brackets have been reduced to four: 12%, 25%, 35%, and 39.6%. The 39.6% tax bracket only applies to single filers with income greater than $500,000, and married filing joint filers with income greater than $1 million.
  • The standard deduction is increased to $12,200 for single filers and $24,400 for married filing joint filers, while the personal exemptions are eliminated.
  • The deduction for state and local property taxes is capped at $10,000, and the deduction for state and local income or sales taxes is eliminated.
  • The deduction for mortgage interest remains the same for existing mortgages, but the limitation will be reduced to $500,000 for newly purchased homes.
  • The charitable deduction remains unchanged, as do retirement plan incentives.
  • The child tax credit is increased to $1,600 per child under age 17, and a new family tax credit of $300 per parent is introduced.
  • The alternative minimum tax is repealed.

Estate and Gift Tax Provisions

  • The estate, gift, and GST exemption is currently increased to $10 million.
  • The estate and GST tax will be phased out over 6 years, while the gift tax will remain.

The HBK Tax Advisory Group (TAG) will continue to monitor the status of this bill to keep our clients and colleagues informed of any changes that may impact them. Please contact Amy Dalen, TAG Chair, at adalen@hbkcpa.com with questions.

About the Author

Amy L. Dalen, JD is a Principal and Tax Advisory Group Chair at HBK CPAs & Consultants and provides support services for the CPAs in all HBK offices.

She is a member of the HBK Tax Advisory Group, specializing in estate, gift, trust, and individual taxation. As a member of the Tax Advisory Group, Ms. Dalen researches complicated tax issues, provides compliance reviews for tax returns and trust accountings, and analyzes and plans for the estates of high net worth individuals. She works closely with the other professionals of HBK, their clients, and the attorneys and other professionals that make up the client’s team of advisors.

Prior to joining HBK, she worked for a Top 100 accounting firm in Maine preparing and reviewing complicated tax returns, providing tax planning for high net worth individuals and their businesses, and researching complicated tax issues.

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