The proposal tax reform bill, a 429-page document, covers a lot of ground. However, we’ve highlighted a few items that will impact both individuals and business owners as soon as 2018. According to CNN Money, they are as follows in the summary below.
Individuals and Families
- Tax Brackets: Currently there are seven tax brackets that any person who receives income falls into. If the bill passes, there will only be four tax brackets for earners to fall into, including zero, 12%, 25%, and 35%; it also keeps the high-earning tax rate at 39.6%.
- Standard Deductions: No matter if you file a 1040 or itemized return, your 2018 tax return filing would have a larger standard deduction, which will rise from $6,350 to $12,000 for individuals, and $12.700 to $24,000 for married couples.
- Family: Personal exemptions will be eliminated; currently you’re able to claim $4,050 for yourself, spouse, and each dependent. A new Family Credit including expanding the child tax credit from $1,000 to $1,600 will be created. Also, a credit of $300 for each parent and non-child dependent will be provided. The Child and Dependent Care Tax Credit will remain as is.
- Charitable Contributions: This deduction will remain so people may contribute to their tax-exempt charities of choice.
- Home Mortgage Interest Deduction: The deductions for existing mortgages remains while maintaining the deduction for newly-purchased homes up to $500,000.
- Itemized Deductions: Itemized deductions for state and local property tax will max out at $10,000.
- Alternative Minimum Tax: Originally, this tax was created to ensure the richest tax payers (those with $200,000 – $1 million income) pay some form of tax. Though this tax generates a lot of revenue, it is on the repeal chopping block.
- Estate Tax: The numbers are increasing for estate tax payments, which fewer than 0.2% of the American estates end up paying. The proposal suggests increasing the exemption levels to twice their current standing of $5.49 million for individuals, and $10.98 million for married couples.
- Corporate Tax Rate: The tax rate will be lowered to 20 percent from 35 percent. That is slated to take effect by 2019.
- Pass-Through Businesses: No more than a 25 percent tax rate on the first 30 percent of pass-through income, previously 39.6 percent, may be claimed by owners, shareholders, and partners. Professional services professionals, such as lawyers and accountants, would be exempt. Partnerships, S Corps and sole proprietors could deduction up to 17.4% of their income, except for those professional service businesses whose taxable income did not exceed $150,000 if married, and $75,000 if single.
- Equipment: Business owners may write off the full costs of new equipment for the first five years. Basically, depreciation as we know it today will be eliminated with the first-year write-off.
- Affordable Housing: The Research and Development Tax Credit will be preserved, encouraging business owners to invest in affordable housing.
- Research and Development Tax Credit: Tax credit will be provided to businesses that develop “Made in America” products and services.
- Overseas Labor: Incentives will be eliminated for businesses shifting jobs, profits, and manufacturing plants overseas.
This Bill still has to be ratified by the Senate, and we expect various changes to be passed. We will provide updates the Bill makes it progress over the coming weeks.