Hi Everyone!
Yesterday, a framework for proposed tax reform was released, and has gotten a lot of media attention, so I wanted to summarize that for you all. Summarizing it isn’t all that hard, because it actually is only a summary, with very little details. So they are simply calling it a framework, or an outline, for now. It is not much different than the proposals that were released 6 months or so ago.
You can read it too, it’s about a 5 minute read, here is the full text of it at the link below:
http://apps.washingtonpost.com/g/documents/business/read-the-complete-republican-tax-plan-released-wednesday/2560/
In general, it is an across-the board tax cut for just about everyone. The only folks who would see their tax increase under the plan live in high income tax states, such as CT and NY (unfortunately this is where most of my clients are!). The proposal is particularly friendly to the mega-rich, as they stand to benefit the most from it.
Here is a summary of the key points:
- Standard deduction of $12,000 for Individuals and $24,000 for Married Taxpayers. This is nearly double the current deduction, making Schedule A itemized deductions less valuable. The winner here would be people who don’t already currently itemize. Home ownership becomes a bit less attractive with this change.
- Our current 7 tax brackets would change to 3 tax brackets of 12%, 25%, and 35%. They provided no details on the income ranges for those tax brackets. The winners here would be anyone making over $418,000 that currently pays a top tax rate of 39.6%.
- Enhanced Child Tax Credit. The current child tax credit is $1,000 per child for those that qualify. No details were given on what the “enhancement” would be.
- Additional $500 credit for non-child dependents. The winners here are families that financially support parents and grandparents.
- Eliminate the Alternative Minimum Tax (AMT). The winners here are the wealthy who currently pay AMT.
- Eliminate itemized deductions, except for mortgage interest and donations. The losers here would be taxpayers in high tax rate states who can currently deduct their state taxes on their Federal tax return (though many of them end up paying AMT, so maybe a wash). With the higher standard deductions in place, very few people would continue to itemize deductions on Schedule A under the proposal.
- Repeal of numerous exemptions, deductions, and credits. No elaboration on that was provided.
- Repeal of estate tax (“death tax”) and the generation-skipping tax. The only winners here are those with assets exceeding $5.5M.
- Pass-thru max tax rate of 25%, for business owners. Winners here would be high-earning business owners, though the proposal also mentions additional rules to prevent “gameplay”.
- C Corporation tax rates would be reduced from a maximum rate of 35%, to a maximum rate of 20%. The goal there is to help US Corporations compete globally, and prevent continuous outsourcing to retain US jobs.
- 100% expensing of business asset purchases for the next 5 years. This would act as a stimulus for business owners to invest for growth, and receive an immediate tax deduction for those costs, rather than depreciating those business assets over a number of years.
$4 trillion in tax cuts on a $1.5 trillion budget will be nearly impossible to pass into law. So expect a lot of debate on the above proposal. While the above has nearly zero chance of actually passing, at least a conversation is started and we will see if lawmakers can agree on some type of reform that at least goes in the direction the above summary is looking to achieve. We’ll keep an eagle eye on the debate (get your popcorn out!) so we can tell you as soon as possible what the plan looks like for you. If it means paying more, we’ll be ready to pivot to new strategies for you that will help you to minimize the impact. If the end plan means you will pay less tax, we’ll be here to make sure you take the maximum advantage of the new rules. Either way, you win with us in your corner!
Be well!
Robert Gambardella, CPA
www.ConciergeTax.com
