What You Need to Know About the Tax Reform Framework

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On September 27, 2017, President Trump and Congressional Republican leaders released the “United Framework for Fixing Our Broken Tax Code”.  The framework broadly describes tax proposals for both individual and business taxpayers, but it left the actual legislative language to congressional tax writing committees.  Following is a summary of the highlights of the proposal:

Individuals

  • The current seven rates for individuals would be consolidated into three: 12, 25 and 35 percent;
  • There would also be an unspecified “additional top rate” applying to the highest-income taxpayers to “ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower and middle-income taxpayers”;
  • Increase of standard deduction to $24,000 for married taxpayers filing jointly and $12,000 for single filers;
  • Repeal of personal exemption for dependents , but significant increase to the child tax credit;
  • Elimination of most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions.
  • Elimination of the federal estate tax, generation-skipping transfer tax and the Alternative Minimum Tax (AMT); and,
  • Provides a non-refundable credit of $500 for non-child dependents.

Businesses

  • Corporate income tax rate would decrease from 35 to 20 percent;
  • Pass-thru businesses would pay 25 percent top tax rate;
  • Expensing for new investments in depreciable assets, other than structures, for at least 5 years. The proposal is to be effective for capital investments made after September 27, 2017;.
  • Framework also aims to eliminate the corporate Alternative Minimum Tax (AMT);
  • Tax deduction for net interest expense incurred by C corporations would be limited and those for other businesses examined;
  • The Section 199, Domestic Production Activities Deduction, would be eliminated;
  • Most other special deductions and credits are eliminated; however they are not specified in the framework;
  • The research tax credit and tax incentives for low income housing would be retained.

The next step is for the tax writing committees, the House Ways and Means Committee and the Senate Finance Committee, to specifically draft the details of this tax reform framework.  Other than the start date of after September 27, 2017 for the capital investment expensing provision, the framework does not designate any definite effective date for any other provision which could leave a January 1, 2018 effective date for other aspects of the tax reform open to negotiation.

You can find the full tax reform framework here.

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