Tax reform 2017
The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance released a framework for tax reform yesterday that they hope will be enacted by year-end. The framework is intended to become the template on which the tax-writing committees will develop legislation. It is designed to keep the promises President Donald Trump made during his campaign.
A Summary of the Framework
For Individuals
- Three tax brackets: 12 percent, 25 percent, and 35 percent (currently there are seven brackets, with the lowest one being 10 percent and the top one being 39.6 percent). However, the framework allows congressional tax-writing committees to add a fourth, higher bracket for high-income individuals. The income levels at which the three brackets would apply were not specified.
- Repeal of the alternative minimum tax.
- Repeal of the estate tax and the generation-skipping transfer tax.
- Taxing pass-through income at a maximum rate of 25 percent. (The tax-writing committees would be given the task of developing rules to ensure that high-income taxpayers do not use this provision to avoid the 35 percent bracket.)
- Increase the standard deduction to $12,000 for individuals and to $24,000 for married couples filing jointly.
- Increase the child tax credit and provide a $500 credit for care of non-child dependents.
- Eliminate most itemized deductions, including the deduction for state and local taxes. They plan to preserve the deductibility of mortgage interest and charitable contributions. The framework directs Congress to maintain tax incentives for higher education, retirement savings, and employment.
- Repeal of the death tax and generation-skipping transfer tax.
For Businesses
- Limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent.
- Reduces the corporate tax rate to 20 percent. The committees also may consider methods to reduce the double taxation of corporate earnings.
- Allow businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years. This policy represents an unprecedented level of expensing with respect to the duration and scope of eligible assets. The committees may continue to work to enhance unprecedented expensing for business investments, especially to provide relief for small businesses.
- An end to taxation of U.S. companies’ worldwide income and a move to a territorial system. The tax-writing committees would have discretion to write anti-base-erosion measures.
- A one-time tax on accumulated offshore earnings, which would be taxed at two unspecified rates: One rate for cash and cash equivalents and a lower rate for other assets.
- Limit the deductibility of interest by C corporations. The committees will also consider the tax treatment of interest paid by non-corporate taxpayers. No further details provided.
- Eliminate deductions, at the tax-writing committees’ discretion, but the framework calls for the research and low-income housing credits to be retained.
You can read the entire framework here.
If you have questions about how this reform will affect you, contact your tax advisor at Ciuni & Panichi, Inc. or Jim Komos, CPA, Tax Partner, at 216-831-7171 or jkomos@cp-advisors.com.
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