The Senate early on December 2, 2017, approved the “Tax Cuts and Jobs Act” (H.R. 1) by a 51-49 vote. The House and Senate must now agree to the same version of the bill.
Individual Tax Rates
There are currently seven regular individual tax rates. The Senate bill also calls for seven brackets but changes the rates on taxable income to:
• 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly)
• 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples)
• 22% (over $38,700 to $70,000; over $77,400 to $140,000 for couples)
• 24% (over $70,000 to $160,000; over $140,000 to $320,000 for couples)
• 32% (over $160,000 to $200,000; over $320,000 to $400,000 for couples)
• 35% (over $200,000 to $500,000; over $400,000 to $1 million for couples)
• 38.5% (over $500,000; over $1 million for couples)
The Standard Deduction and personal exemptions
• The individual standard deduction increases from $6,350 to $12,000 and the joint standard deduction increases from $12,700 to $24,000
• The bill would suspend the personal exemption deduction for years after 12/31/17 and before 1/1/26
• The child credit would increase to $2,000 from $1,000
Certain Deductions Modified
• Charitable deductions would continue and the 50 percent of adjusted gross income limitation will be raised to 60 percent
• Mortgage Interest deductions for mortgage interest on mortgage debt up to $1,000,000
• The deduction for real property taxes would be allowed up to $10,000
• Medical expense deductions – the bill would keep the deduction and lower the AGI threshold from 10% to 7.5%
• Moving expense deductions would be suspended for year after 12/31/17 and before 1/1/26
Other key points
• The Alternative Minimum Tax would be retained for corporations and the plan retains the individual AMT with higher exemption amounts
• The health insurance mandate penalty is repealed
• 401K contributions pre-tax and IRA Deductions remain
• Estate Tax Exemptions are doubled
• Corporate Tax Rates on non-pass through entities would be lowered from 35 to 20% beginning in 2019
• There would be an immediate write off for the Full Cost of New Equipment but not buildings
• Pass through entities will qualify for a 23% deduction but that service businesses that earn over $250,000 per year wouldn’t be eligible for the deduction
• Foreign Earnings of US Companies would receive a dividend received exemption reducing the amount that is taxable
o The bill also includes a one-time deemed repatriation tax rate on foreign earnings and profits
o The tax rate would be 14.5% on foreign cash holdings and 7.5% on illiquid assets
Please note that the Senate version of the Tax Cuts and Jobs Act is still subject to change and still needs to be reconciled with the House’s version. We expect that there will be more changes as the Senate and House now work to create one version of the bill.
For more information on how any of these changes might impact you or your business, please contact your tax advisor or Timothy Devlin, Tax Services Leader, at [email protected].
