Learn more during a Free Webinar: Monday, November 13, 1:00 PM EST – No prior registration necessary. Just log in and join.
Bryan Vickers of PACE Government Relations will host an informative 1-hour with Q&A opportunities, on November 13 at 1:00 PM EST. No registration is necessary.
Click here on Monday, November 13 to join.
Audio connection: +1-510-338-9438 USA Toll
Passcode: 623 568 003
Last week, House leadership unveiled tax reform legislation (aka The Tax Cuts and Jobs Act), which would make significant changes to rates and deductions for both individual and business. Although TLMI has not adopted a formal position on the legislation, member companies may want to use this information to prepare for changes in policy.
Effect on Taxation of Business Income
Corporate Tax Rate: The corporate tax rate would drop from 35% to 20% permanently.
S-Corp Rate: For S-corps, pass-thru companies and LLCs, the tax rate will not exceed 25%. Safeguards have been put in place to ensure this will only apply to true business operations, to avoid high earning individuals from paying a lower rate.
Estate Tax: The estate tax exemption will double to roughly $11 million. The legislation phases out the estate tax entirely by 2024.
Alternative Minimum Tax (AMT): The AMT would be permanently repealed.
Research and Development (R&D) Tax Credit: The R&D tax credit is retained in the bill, with no changes.
Expensing: In place of companies “depreciating” investments by deducting them over several years, companies would be permitted to immediately expense investments. This provision would expire after five years.
Domestic Production Deduction: Currently, businesses can claim deductions for domestic production of as much as 9% of their taxable income, subject to certain limits. The House bill would eliminate this deduction.
Trade Associations: TLMI has carefully followed proposals over the past two months with the potential to place an Unrelated Business Income Tax (UBIT) on some association income (TLMI is classified as a tax-exempt organization). As drafted, the bill would not levy taxes on conference sponsorships and similar association derived income. Note: Due to the potential impact on TLMI revenue, the association joined dozens of other organizations in opposing this tax.
Effect on Taxation of Personal Income
New individual rates (and accompanying income levels) are included in the bill. The top rate of 39.6% for those earning $1 million or more annually would remain the same. The new rates are as follows:
12% Rate: Would apply to incomes up to $45,000 for an individual and $90,000 for a married couple.
25% Rate: Would apply to incomes up to $200,000 for an individual and $260,000 for couples.
35% Rate: Would apply to incomes up to $500,000 for an individual and $1 million for couples.
Standard Deduction: The bill would raise the standard deduction for singles to $12,000 from $6,350. It would also raise it for married couples filing jointly to $24,000 from $12,700. (This could drastically reduce the number of people who opt to itemize their deductions, since the only reason to do so is if your individual deductions combined exceed the standard deduction amount.)
State and Local Income and Sales Tax: These deductions would be eliminated, however, local property taxes would be deductible up to $10,000.
Mortgage Interest Deductions: For existing loans, the ability to write off mortgage interest will remain the same. Moving forward, deductions on interest would be capped at loans of $500,000 or less (decreasing the current cap of $1 million).
Personal Exemptions: Currently there is a $4,050 personal exemption for a taxpayer, the spouse and each of your dependents. The House bill would eliminate that exemption.
The House Ways and Means Committee will begin markup of the legislation beginning on Monday, November 6 – the bill will likely be refined by amendments, which can add, remove, or change the language of the original bill text, throughout the week. The legislation will need to be passed out of the Committee prior to floor consideration and a vote by House members. Republican House leadership would like to have it passed and to the Senate prior to the Thanksgiving recess.