Written by: Renee Vuylsteke, Enrolled Agent
As we are approaching the end of the year it is a good time to revisit the potential 2017 tax reform. The Trump Administration and select members of Congress have released a “unified framework” for the tax reform. This provides more detail than a number of the other tax reform documents that have been released from the administration over the past few months but it still leaves many specifics to be worked out. There is no indication in the framework itself of when the tax reform provisions would go into effect. However Treasury Secretary Mnuchin has reportedly said that President Trump would like the tax reform provisions to be retroactive to January 1, 2017. Let’s take a look at some of the highlights from this “unified framework”.
For Individual Taxpayers
- Increased standard deduction, elimination of personal exemptions and additional standard deductions for older/blind taxpayers. The framework would increase the standard deduction to $24,000 for married filing jointly and $12,000 for single filers. There also wouldn’t be personal exemptions for dependent children and no provision for heads of household so presumably they would file single.
- Reduced number of tax brackets. The framework would reduce the number of tax brackets from seven to three – 12%, 25% and 35%. Under current law, the lowest tax bracket is 10% and the highest is 39.6%.
- Child tax credit enhanced and non-child credit provided. The framework states that it will increase the child tax credit but doesn’t specify the amount. The income levels at which the credit phases out would be increased as well. The framework also provides a non-refundable credit of $500 for non-child dependents.
- AMT repealed. The framework calls for repealing of the individual alternative minimum tax.
- Itemized deductions largely eliminated. The framework would eliminate most itemized deductions but would retain tax incentives for home mortgage interest and charitable contributions.
- Work, education and retirement benefits retained. The framework would retain tax benefits but make them simpler and more effective.
- Catch-all. The frameworks notes that many other exemptions, deductions and credits for individuals will be likely repealed in order to make the system simpler and fairer.
- Estate and generation-skipping transfer taxes repealed. The framework calls for the repeal of both the estate tax and generation-skipping transfer tax.
For Business Taxpayers
- New top rate for “small” pass-throughs. Under the framework, the maximum tax rate applied to the business income of “small” and family-owned businesses conducted as sole proprietorships, partnerships and S corporations would be 25%.
- New corporate tax rate. The framework would reduce the corporate tax rate to 20% and aims to eliminate the corporate AMT. Also the committees may consider methods to reduce the double taxation of corporate earnings.
- Full expensing for five years. The framework would allow business to immediately write off the cost of new depreciable assets other than structures that were made after September 27, 2017.
- Interest expense deductions. The deduction for net interest expense incurred by C Corporations would be partially limited under the framework.
- Most deductions and credits repealed but research and low-income housing credits retained. The framework states that because of the rate reduction for businesses, the domestic production activities deduction (DPAD) would no longer be necessary. It also provides that many other special exclusions and deductions would be repealed or restricted but would retain the research credit and low-income housing tax credit.
Kevin Brady, chairman of the tax-writing House of Representatives Ways and Means Committee, said his plan is to turn the framework into legislation to be passed by the end of this year. For now we wait and see if this framework is passed by the end of the year. Until then, if you have any questions or concerns please contact us.