Ed Slott: New Tax Bill Draft Is 'Very Taxpayer Friendly'

Overall, the tax plan "is very taxpayer friendly, saving taxes for a large swath of taxpayers from low income to high income," Slott said. "Some version of this first version will pass and become law, the only question is 'How will it be paid for?' Something has to give, in terms of what will have to be cut. The next few rounds of negotiating this will bring the surviving provisions into focus."

The committee's Republicans "have spent two years preparing for this moment, and we will deliver for the American people," House Ways and Means Committee Chairman Jason Smith, R-Mo., said in announcing the markup.

A preliminary estimate from the Joint Committee on Taxation finds the draft bill would cost nearly $5 trillion over 10 years, the Tax Policy Center wrote Monday in a blog post. "That’s already a half trillion more than the House budget resolution permitted under a best-case scenario pushed by deficit hawks to have at least $2 trillion in corresponding spending cuts."

Estate and Gift Tax Exemption

Under current law, the exemption resets to around $7 million per person in 2026.

In the draft bill, "the new base amount for 2026 will increase to $15 million per person, or $30 million for a married couple, plus this change is to be permanent, which leads to more estate planning reliability and certainty going forward," Slott explained. "That will help planners tremendously."

QBI Deduction

Another "big item" helping small businesses is the qualified business income deduction, currently 20%, Slott relayed.

"This is a huge tax benefit for many small businesses," and the bill makes the deduction permanent and increases it to 23%.

Itemized Deductions

"Miscellaneous itemized deductions are gone … permanently," Slott said, an "obvious outcome since more than 90% of taxpayers no longer itemize and use the higher standard deduction."

Advisor fees, Slott continued, "used to be deductible as miscellaneous itemized deductions in this category, so that is gone permanently (like it has been for years already), along with any deductions for tax preparation fees."

However, taxpayers using the standard deduction "now will benefit more due to the proposed increase of $2,000 for those filing married-joint," Slott relayed. "That could help offset a bit more taxable income. Along these lines, the deductions for personal exemptions are to be permanently eliminated."

Income Tax Cuts

The overall income tax cuts "are to be extended with added inflation increases, so that’s good news for all taxpayers," Slott said. "There was talk of increasing the top bracket to 39.6%, but that is not in this proposed bill."

One caveat, according to Ben Henry-Moreland, senior financial planning nerd at Kitces.com: An amendment reducing the bill's cost is expected before the markup Tuesday.

"That could include the return of the 39.6% top bracket in some form," he told ThinkAdvisor in a message. "But we won't know for sure until that amendment is released."

Child Tax Credit

The child tax credit "is to be extended and temporarily increased to $2,500 per child from $2,000 so that should help many families with child care expenses," Slott added.

SALT Cap and Other Deductions

The latest version of the bill raises the deduction limit for state and local taxes — known as the SALT cap — to $30,000 and puts income limits in place. It also eliminates income taxes on tips and overtime pay through 2028, Bloomberg reported.