Significant Overhaul of the U.S. Tax Code
House Republicans on November 2 unveiled their much-anticipated tax reform legislation, the Tax Cuts and Jobs Act. The bill represents the House Ways and Means Committee’s first legislative offer to significantly overhaul the U.S. Tax Code.
Bill Highlights
The bill loosely follows the unified framework released by the House, Senate and Trump Administration in September. House Ways and Means Chairman Kevin Brady, R-Tex., told reporters at the White House, “The president is here today leading on tax reform…you are seeing with singular purpose a unified effort to break the status quo, to drain the swamp of this tax code and to change it for the better for the American people.”
During the November 2 meeting with House Republicans at the White House, Trump said he wants to see a bill on his desk by Thanksgiving. In a statement released by the president on the same day, Trump applauded the Ways and Means Committee for introducing the bill, calling it an important step toward providing tax relief for Americans. “My tax reform priorities have been the same since day one: bringing tax cuts for hardworking, middle-income Americans; eliminating unfair loopholes and deductions; and slashing business taxes so employers can create jobs, raise wages, and dominate their competition around the world.”
Tax Changes for Individuals
- Lower the individual tax rates after 2017 for low-to-middle income taxpayers to 12, 25, and 35 percent. For joint returns, the 25 percent rate would start at $90,000 and the 35 percent rate at $260,000. For single, individual filers, the rates increase at $45,000 and $200,000, respectively. The bill would maintain the current 39.6 percent tax rate for joint filers with taxable income of more than $1,000,000 ($500,000 for individuals);
- Increase the standard deduction from $6,350 to $12,200 for individuals and $12,700 to $24,400 for married couples;
- Aim to simplify the tax code and filing process by eliminating “special-interest deductions;”
- Establish a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600, and providing a credit of $300 for each parent and non-child dependent to help all families;
- Eliminate personal exemptions;
- Preserve the Earned Income Tax Credit;
- Continue the deduction for charitable contributions for those who itemize;
- Eliminate the alimony deduction;
- Grandfather in the home mortgage interest deduction for existing mortgages up to the current $1,000,000 debt limit but lower the limit going forward to $500,000 for the home mortgage interest deduction on newly purchased homes;
- Continue to allow itemized deduction for property taxes, but only up to $10,000;
- Eliminate the current itemized deduction for state and local income taxes;
- Retain popular retirement savings options such as 401(k)s and Individual Retirement Accounts as they are currently structured;
- Repeal the alternative minimum tax (AMT); and
- Double the estate tax exclusion, with full repeal after 2023.
Tax Changes for Businesses
- Cut the corporate tax rate after 2017 to 20 percent;
- Create a top pass-through rate of 25 percent on small business income with safeguards against abuse;
- Create a temporary 100 percent expensing write-off for qualified business property (effective September 28, 2017);
- Make numerous changes to the taxation of foreign income and foreign persons/businesses;
- Cap the deduction for net interest expenses at 30 percent of adjusted taxable income, except for small businesses;
- Modify the net operating loss deduction; and
- Allow for the temporary repatriation of foreign earnings at a 12 percent rate (5 percent for noncash holdings).
As Congress debates on tax overhaul, MCB will keep clients informed of the proposed legislative changes regarding tax reform and the impact on our tax clients. Please contact an MCB Tax Advisor today if you require advice for year-end tax planning by clicking here or call us at 703.218.3600.