Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Financial Planning > Tax Planning > Tax Deductions

Everything You Need to Know About the GOP Tax-Overhaul Bill

X
Your article was successfully shared with the contacts you provided.

Here are key changes to U.S. tax law for individuals and businesses that have emerged from the final Republican bill that’s headed for votes in the House and Senate next week.

Individual Tax Rates

(Note: Individual rate cuts would begin in 2018 and expire after 2025.)

Current law:

Seven rates, starting at 10% and reaching 39.6% for incomes above $418,401 for singles and $470,701 for married, joint filers.

Proposed: 

Seven rates, starting at 10% and reaching 37% for incomes above $500,000 for singles and $600,000 for married, joint filers.For joint filers: 10%: $0 to $19,050 12%: $19,050 to $77,400 22%: $77,400 to $165,000 24%: $165,000 to $315,000 32%: $315,000 to $400,000 35%: $400,000 to $600,000 37%: $600,000 and above

For single filers:

10%: $0 to $9,525 12%: $9,525 to $38,700 22%: $38,700 to $82,500 24%: $82,500 to $157,500 32%: $157,500 to $200,000 35%: $200,000 to $500,000 37%: $500,000 and above

Corporate Tax Rate

Current law: 35%

Proposed: 21%, beginning in 2018.

Corporate Alternative Minimum Tax

Current law: Applies a 20% rate as part of a parallel tax system that limits tax benefits to prevent large-scale tax avoidance. Companies must calculate their ordinary tax and AMT tax, and pay whichever is higher.

Proposed: Repealed.

Individual Alternative Minimum Tax

Current law: Individual AMT can apply after exemption level of $54,300 for singles and $84,500 for married, joint filers, and the exemptions phase out at higher incomes.

Proposed: Increase the exemption to $70,300 for singles and $109,400 for joint filers. Increase the phase-out threshold to $500,000 for singles and $1 million for joint filers. The higher limits would expire on Jan. 1, 2026.

Expensing Equipment

Current law: Businesses must take depreciation, spreading the recognition of their equipment costs for tax purposes over several years.

Proposed: Businesses could fully and immediately deduct the cost of certain equipment purchased after Sept. 27, 2017 and before Jan. 1, 2023. After that, the percentage of cost that could be immediately deducted would gradually phase down.

Repatriation

Current law: The U.S. taxes multinationals on their global earnings at the corporate rate of 35%, but allows them to defer taxes on those foreign earnings until they bring them back to the U.S., or “repatriate” them.

Proposed: U.S. companies’ overseas income held as cash would be subject to a 15.5% rate, while non-cash holdings would face an 8% rate.

Pass-Through Deduction

Current law: Pass-through businesses, which include partnerships, limited liability companies, S corporations and sole proprietorships, pass their income to their owners, who pay tax at their individual rates.

Proposed: Owners could apply a 20% deduction to their business income, subject to limits that would begin at $315,000 for married couples (or half that for single taxpayers).

Obamacare Individual Mandate

Current law: An individual who fails to buy health insurance must pay penalties of $695 (higher for families) or 2.5% of their household income — whichever is higher, but capped at the national average cost of the most basic, low-premium, high-deductible plan.

Proposed: Repeal the penalties.

Standard Deduction and Personal Exemptions

Current law: $6,350 standard deduction for single taxpayers and $12,700 for married couples, filing jointly. Personal exemptions of $4,050 allowed for each family member.

Proposed: $12,000 standard deduction for single taxpayers and $24,000 for married couples, filing jointly. Personal exemptions repealed.

Individual State and Local Tax Deductions

Current law: Individuals can deduct the state and local taxes they pay, but the value is subject to certain limits for high earners.

Proposed: Individuals can deduct no more than $10,000 worth of the deductions, which could include a combination of property taxes and either sales or income taxes.

Mortgage Interest Deduction

Current law: Deductible mortgage interest is capped at loans of $1 million.

Proposed: Deductible mortgage interest for new purchases of first or second homes would be capped at loans of $750,000 starting on Jan. 1, 2018.

Medical Expense Deduction

Current law: Qualified medical expenses that exceed 10% of the taxpayer’s adjusted gross income are deductible.

Proposed: Reduce the threshold to 7.5% of AGI for 2017 and 2018.

Child Tax Credit

Current law: A $1,000 credit for each child under 17. The credit begins phasing out for couples earning more than $110,000. The credit is at least partially refundable to qualified taxpayers who earned more than $3,000.

Proposed: Double the credit to $2,000 and provide it for each child under 17 through 2025. Raise the phase-out amount to $400,000, and cap the refundable portion at $1,400 in 2018.

Estate Tax

Current law: Applies a 40% levy on estates worth more than $5.49 million for individuals and $10.98 million for couples.

Proposed: Double the thresholds so the levy applies to fewer estates. The higher thresholds would sunset in 2026.


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.