By Nick Spoltore
Early this morning, a press release from the U.S. House of Representatives Committee on Ways & Means provided policy highlights of the eagerly anticipated Tax Cuts & Jobs Act. The following are the hot-off-the presses details you and your clients need to know.
- The tax rates will be 12%, 25%, 35%, and 39.6% – retaining the current highest individual rate. The announced rates are:
- Single Filers
12% $0 – $45,000
35% $200,001 – $500,000
39.6% $500,001 or more
- Married Filing Joint
12% $0 – $90,000
25% $90,001 – $260,000
35% $260,001 – $1M
39.6% Over $1M
- The standard deduction increases from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.
- A new Family Credit is established, which expands the Child Tax Credit from $1,000 to $1,600 and provides a credit of $300 for parents and non-child dependents.
- The Child and Dependent Care Tax Credit is preserved.
- The Earned Income Tax Credit is preserved.
- Higher education benefits will become streamlined in an effort to make college education more affordable.
- The deduction for charitable contributions is preserved.
- The home mortgage interest deduction is preserved for existing mortgages. For newly purchased homes, it will be capped at $500,000.
- State and local property taxes can continue to be deducted up to $10,000.
- 401Ks and IRAs are preserved (contrary to many rumors before the press release).
- The Alternative Minimum Tax will be repealed.
- The Estate Tax exemption will be doubled. With portability, this would shield approximately $20M per couple from the so-called death tax. This tax would be repealed after six years.
- The corporate tax rate will be lowered from 35% to 20%.
- The pass-through rate will be 25% with built-in safeguards to delineate between W-2 income and pass-through business income.
- Businesses will be able to immediately expense the full cost of new equipment. Depreciation will take on lesser importance.
- Businesses will still be able to write off loan interest.
- The Low-income Housing Tax Credit is retained.
- The Research & Development Tax Credit is retained.
- The accountability rules for tax-exempt organizations will be strengthened.
- Accommodations for modernizing our international tax system, repatriating foreign earnings at a one-time low rate, and preventing American industry from moving overseas were listed.
- It is noted that a typical family of four earning $59,000 (median household income) will receive a $1,182 tax cut. Other examples are provided emblematic of the notion that this draft bill will provide tax relief to individuals and businesses at all income levels.
- Moreover, the claim is made that 90% of Americans will be able to file their taxes on a form akin to a postcard.
- Notably, state and local tax deductions are eliminated in their entirety. Set the stage for politicos in high tax states to rally against this take-away. And these are not just Democratic states – think of the high sales taxes in Republican states like Tennessee.
- Note also the medical expense deduction and casualty loss deduction will go away.
Also certainly worth mentioning for our future consideration, the press release states that the Ways and Means Committee is working on a different bill, to be considered in 2018, which would modernize the I.R.S.
Please keep in mind that this writing is intended to provide readers with a quick insight into the key Policy Highlights of the Tax Cuts and Jobs Act. Though details provided in today’s press release are scant thus far, Surgent will continue to provide you with up-to-the-minute analysis of this tax reform process right here on Surgent’s Tangible Gains blog, as well as in offerings such as our Best Federal Tax Update Course and Trending in Tax, both presented by Forbes tax policy writer Tony Nitti, CPA.
Nick Spoltore is Senior Director of Tax & Advisory Content for Surgent CPE. Mr. Spoltore is a graduate of the University of Notre Dame and of Delaware Law School. Before joining Surgent, he practiced tax and business law at the firm of Heaney, Kilcoyne in Pennsylvania and also in Delaware.