The Tax Cuts & Jobs Act Policy Revealed

On November 2, 2017, the Ways and Means Committee of the U.S. House of Representatives released a highlight summary of the “The Tax Cuts & Jobs Act.” As with any proposed legislation there are sure to be many changes before the ultimate law is passed.

Below are some of the highlights of the proposed changes expected to be effective 1/1/2018 for the 2018 tax year.

 

Individual Tax Provisions

  • Individual tax rates would be reduced to four levels with the lowest level increasing to 12% and the highest level remaining at 39.6% for individuals with income over $500,000.
  • The standard deduction would increase to $12,200 single and $24,400 for married couples, while the personal exemptions would be eliminated.
  • Most deductions would be repealed including medical expenses, alimony, tax preparation fees and casualty losses.  Deductions for charitable contributions and mortgage interest (with limitations) would remain.
  • Sales tax would not be deductible and real estate tax deduction would be limited to $10,000.
  • The adoption tax credit would be repealed.
  • Alternative Minimum Tax would be repealed.

 

Pass-through income

  • A portion of the net income distributions from passthrough entities would be taxed at a maximum 25% rate
  • The income from non-passive business activities, including wages, could elect to treat 30% of the income at the 25% rate.  The balance would be taxed at ordinary income rates.
  • The 25% rate would be limited to certain business activities.

 

Business Tax Provisions

  • Flat 20% corporate tax rate
  • Increased Section 179 expensing allowance
  • Net Operating Loss carryovers would be limited.
  • A number of the business and energy credits would be eliminated.

 

Foreign income provisions

  • The bill would add a new section to replace the foreign tax credit on dividends received by US corporations.
  • In addition, no foreign tax credit would be allowed for any taxes paid on dividends.

 

Exempt organizations

  • Proposed changes to the treatment of unrelated business income.
  • Changes to excise tax on private foundations.

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