Our NYC accountant office provides the following summary on the new tax reform legislation put forth by House Republicans on November 2. The Tax Cuts and Jobs Act (HR 1) is a 429-page bill which represents the House Ways and Means Committee’s first legislative offer to significantly overhaul the U.S. Tax Code.
The bill loosely follows the unified framework released by the House, Senate and Trump Administration in September (TAXDAY, 2017/09/28, C.1). House Ways and Means Chairman Kevin Brady, R-Tex., who has spearheaded tax reform efforts among House Republicans, said on November 2 after meeting with Trump at the White House that the president is “all in.” Brady told reporters at the White House, “The president is here today leading on tax reform…you are seeing with singular purpose a unified effort to break the status quo, to drain the swamp of this tax code and to change it for the better for the American people.”
During the November 2 meeting with House Republicans at the White House, Trump said he wants to see a bill on his desk by Thanksgiving. In a statement released by the president on the same day, Trump applauded the Ways and Means Committee for introducing the bill, calling it an important step toward providing tax relief for Americans. “My tax reform priorities have been the same since day one: bringing tax cuts for hardworking, middle-income Americans; eliminating unfair loopholes and deductions; and slashing business taxes so employers can create jobs, raise wages, and dominate their competition around the world.”
On the individual side of the tax code, the Tax Cuts and Jobs Act proposes to do the following:
- Lower the individual tax rates for low-to-middle income taxpayers to 12, 25, and 35 percent. For joint returns, the 25 percent would start at $90,000; and at $260,000 for the 35 percent bracket (half for single, individual filers). The bill would maintain the current 39.6 percent tax rate for joint filers with taxable income of more than $1 million ($500,000 for individuals);
- Increase the standard deduction from $6,350 to $12,200 for individuals and $12,700 to $24,400 for married couples;
- Aim to simplify the tax code and filing process by eliminating “special-interest deductions;”
- Establish a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600, and providing a credit of $300 for each parent and nonchild dependent to help all families;
- Eliminate personal exemptions;
- Preserve the Earned Income Tax Credit;
- Continue the deduction for charitable contributions for those who itemize;
- Grandfather in the home mortgage interest deduction for existing mortgages up to the current $1 million debt limit but lower the limit going forward for the home mortgage interest deduction on newly purchased homes up to $500,000;
- Continue to allow itemized state and local property taxes deduction but only up to $10,000;
- Eliminates the current itemized deduction for state and local taxes;
- Retain popular retirement savings options such as 401(k)s and Individual Retirement Accounts as they are currently structured;
- Repeals the alternative minimum tax (AMT); and
- Double the estate tax exclusion, with full repeal after six year.
- On the business side of tax reform, the Tax Cuts and Jobs Act would, among other things, includes proposals to:
- Cut the corporate tax rate to 20 percent;
- Create a top passthrough rate of 25 percent on small business income with safeguards against abuse;
- Create a temporary 100 percent expensing write-off for qualified business property;
- Make numerous changes to the taxation of foreign income and foreign persons/ businesses;
- Cap the deduction for net interest expenses at 30 percent of adjusted taxable income, except for small businesses;
- Modify the net operating loss deduction; and
- Allow for the temporary repatriation of foreign earnings at a 12 percent rate (5 percent for noncash holdings).
Our nyc cpa and nyc accountants will continue to provide updates as this tax reform legislation is advanced. Please contact us with any questions about 2017 tax reform that you may have and the impact tax reform may have on freelancers and self-employed individuals.