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Senate Passes Extensive Revision to the Tax Code – Up Next?

December 4, 2017 Uncategorized Comments Off on Senate Passes Extensive Revision to the Tax Code – Up Next?

Reconciliation with the House

Over the weekend, the Senate passed an extensive overhaul to the U.S. tax code. Both the Senate and House chambers will commence meetings today (Monday) with the objective to finally reconcile and approve a unified piece of legislation to forward to the president for signature.

It is important to note that there are differing opinions on how this ultimate “reconciliation” between the House and Senate will impact the final unified piece of legislation. The items below are not all-inclusive and could still change dramatically in the final reconciliation as both chambers reconcile and the reconciled bill is put up for final revote.

Below we have included some of the highlights of what passed the Senate along with those areas requiring further reconciliation with the House.

Highlights of Senate Provisions Passed (Not All-Inclusive)

  • Commencing 2019, reduction of the C Corporate tax rate to 20% (down from 35%)
  • Full expensing of new equipment, machinery, and other capital items for five years (with phase outs by 20% per year thereafter)
  • Lowers taxes for pass-through entities by allowing these entities to deduct 23% of their income This deduction would be limited to half of the W-2 wages (or guaranteed payments) of the pass-through entity paid out by the business. This W-2/guaranteed payment rule would not apply, however, if the filer’s taxable income is under $500,000 if married filing jointly or $250,000 if single. Personal service businesses are not eligible.
  • Removes our current “worldwide” tax system to a “territorial” tax system impacting US multinational corporations and contains a one-time low tax rate for repatriation (14.5% on cash assets and 7.5% on non-cash assets)
  • Seven personal tax brackets – 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%
  • Nearly doubling the standard deductions (to $12,000 for single and $24,000 for married)
  • Eliminates personal exemptions
  • Expands the child tax credit to $2,000 per child (up from $1,000) also expanding who is eligible for the credit by raising income thresholds for phase out on married couples to $500,000 (up significantly from current $110,000)
  • Keeps mortgage interest deduction as is, but disallows interest deductions for home equity loans, Senate bill also lengthens the time you must live in the home to receive the full exclusion.
  • Caps property tax deductions to $10,000 and eliminates state/local tax deductions
  • Preserves the Alternative Minimum Tax but increases the level of income exempt from it
  • Temporarily lowers the medical expense deduction threshold to 7.5% for tax years 2017 and 2018
  • Elimination of a variety of itemized deductions
  • Preserves the estate tax, but doubles the exemption levels
  • Repeals the individual mandate to buy health insurance

Items Requiring Further Reconciliation between the House and Senate (Not All-Inclusive)

  • Corporate tax rate reduction in 2018 vs. Senate 2019
  • Dramatic differences in treatment of flow-through income
  • Business investment in new assets allowed for expensing expires after 2022
  • Repatriation tax rate differences
  • House bill contains four personal tax brackets (12%, 25%, 35% and 39.6%) vs. Senate seven above.
  • House also increases estate tax exemptions, but they are looking to repeal estate tax entirely in 2025.
  • Various itemized deduction differences; for example, the House proposed to eliminate medical tax deductions vs. Senate enhancing the deduction and lowering threshold to deduct.
  • House bill eliminates Alternative Minimum Tax.

Disclaimer: Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Newburg & Company, LLP would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

 

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