Tax reform is high on President Trump’s agenda and the Tax Cuts and Jobs Act bill is undergoing several changes as it moves through the House and Senate before possibly being voted into law.
On November 16, the House approved the Tax Cuts and Jobs Act by a vote of 227-205. Then, late on November 16, the Senate Finance Committee completed markup of its tax reform plan and approved the plan by a 14-12 vote along party lines. The full Senate is expected to vote on their bill this week. If the full Senate passes their bill (which is not assured) then both versions will be sent to the joint committee of House and Senate who will attempt to compromise/reconcile them.
Both versions contain similarities but also many differences. What eventually comes from the joint committee will then be sent to the House and Senate for approval and, if approved, would then go to President Trump who is expected to sign the legislation. Much of the legislation would begin in tax years beginning in 2018.
Here is a sampling of some of the legislation:
- Both bills propose a change in tax brackets. House bill proposed four tax rates: 12%, 25%, 35%, and 39.6%. The Senate bill now is proposing these 7 rates: 10%, 12%, 22%, 24%, 32%, 35%, 38.5%. The Senate’s bill makes its individual tax cuts temporary, while the House’s plan makes them permanent.
- The standard deduction is nearly doubled from current law as shown below:
|Tax Filing Status||Current 2018 Law||House Bill||Senate Bill|
|Head of Household||$9,550||$18,300||$18,000|
|Married Filing Jointly||$13,000||$24,400||$24,000|
- Personal exemptions, moving expenses, student loan interest, and tuition/fees are all eliminated.
- State and local income and property deductions are eliminated except that the House bill provides for a deduction for property taxes only, up to $10,000.
- Charitable deductions are still fully deductible.
- Full repeal of AMT for both individuals and corporate taxpayers.
- Corporate tax rate revised to 20% (although the Senate tax cut would apply after 2018).
- The cash method of accounting would be expanded so that more companies would be able to use it.
- Bonus depreciation generally retained at 100% for the next five years. Section 179 also increased significantly.
- Tax on pass-through entity income will generally be reduced under both plans but how it will be done will be handled differently. The House bill lowers the top pass-through income tax rate from 39.6% to 25% for small businesses. The bill also has a 9% rate on the first $75,000 in income for business owners making $150,000, which will phase in over five years. The Senate bill takes a different approach by allowing a 17.4% deduction of business income for most entity owners.
- Cost basis of securities sold would have to be determined on a FIFO basis under the Senate Bill. An exception is provided where average cost basis is used (such as with mutual funds).
- The House bill would eliminate alimony payments as a deduction.
- Both versions of the bill would immediately double the lifetime exclusion amount from estate tax to nearly $11 million for individuals and $22 million for couples. Under the House bill, the estate tax is repealed in 2024, while the Senate keeps the tax, just with the higher exemption amounts.
Overall, the bill is massive in terms of size and scope. One word of caution, make sure to consult with your DHJJ CPA as to how this legislation may affect you. There are potential tax maneuvers to make prior to end of year. If the bill does pass, please watch DHJJ.com for information on navigating tax reform.
If you have questions, please email Scott at firstname.lastname@example.org or contact DHJJ at 630-420-1260.