Trump's Final Tax Plan Summary
The final bill to overhaul our tax code will be voted upon and likely passed this week. The Senate and House passed separate and different versions of "Trump's" Tax Reform Act. As it works, the two versions of the tax bill went into a joint conference of certain House and Senate members who then reconciled the two versions.
A summary of some of the important provisions of the final bill for businesses and individuals are as follows:
- Work Opportunity Credit: The House version repealed it. The Senate version kept it. The final version preserves the work opportunity credit going forward.
- Last in First-out (LIFO) Accounting provision: The final version preserves LIFO.
- Estate Tax (individual): The estate tax exemption amount is effectively doubled to $11,000,000.
- Alternative Minimum Tax: The exemptions for AMT are roughly doubled for individual taxpayers. The corporate AMT is repealed.
- Pass-Through Entities: Owners of pass-through entities and sole proprietors will be taxed on income at their individual tax rates as they are now, but they will allowed a 20% deduction for business-related income. The 20% deduction would be disallowed with a phase-in to businesses providing professional services. The phase-in of the disallowance begins at $157,500 for individual taxpayers and $315,000 for married taxpayers filing jointly.
- State and Local Tax Deduction (Individual): The final version allows a deduction up to $10,000 for property tax and income or sales tax.
- Standard Deduction (Individuals): The standard deduction roughly doubles. The standard deduction is increased as follows: a) For married couples filing jointly the standard deduction is increased to $24,000 (from $13,000); b) For single filers the standard deduction is increased to $12,000 (from $6,500); c) For heads of household the standard deduction is increased to $18,000 (from $9,550).
- Personal Exemption (Individual): The personal exemption is suspended.
- Child Tax Credit (Individual): The child tax credit is doubled from $1,000 to $2,000. The refundable portion is set at $1,400.
- Mortgage interest deduction (individual): The mortgage interest deduction is allowed to interest on debt up to $750,000. This is a reduction, as the current rule allows interest deduction up to $1,000,000.
- Corporate Tax Rates: The top corporate tax rate drops from 35% to 21%--effective during 2018.
- Health Insurance Mandate (individual): The rule requiring individuals to carry health insurance or pay a penalty ("tax") has been abolished.
- Alimony: The alimony deduction will be repealed in 2019. Any divorce or separation instrument executed after December 31, 2018 will be subject to this change.
More information on the impact of tax reform will be forthcoming.
Bowman Law Firm, Attorney & CPA, Huntsville, Alabama