New Tax Bill Questions
Tax reform discussions continue in Washington with legislation expected to be released very soon. GOP lawmakers in the House and Senate appear to be aiming for a comprehensive overhaul of the Tax Code.
Although the specifics are not yet known, a GOP tax bill is expected to lower the individual and corporate tax rates and eliminate many tax credits and deductions. The corporate tax rate could be lowered to 20 percent (or in the 20s), the individual tax rates are expected to cap at 35 percent with a possibility of less tax brackets (although a higher rate may be retained), and the list of eliminated credits and deductions is likely to be lengthy. There is also talk of a lower rate for pass-through businesses.
The current Tax Code contains hundreds of credits and deductions, targeted to individuals, businesses and taxpayers of all types. These tax preferences touch on almost every activity. In past years, proposals to repeal tax preferences have met stiff resistance from the taxpayers they benefit. The Trump Administration and Republicans in Congress appear to support keeping the home mortgage deduction and the charitable contribution deduction for individuals. Almost every other tax preference could be a candidate for repeal.
The GOP tax bill could also repeal the alternative minimum tax (AMT) and the federal estate tax. The federal gift tax, however, does not appear to be on the chopping block. Without bill language, it is nearly impossible to envision the components of a GOP tax bill. Left unanswered, at least for now, are some important questions. Will the GOP tax bill be retroactive to January 1, 2017 (most likely not at this point)? Will the GOP tax bill expire after 10 years, as some tax bills have in the past? Our office will monitor developments if you have any questions.
At this time, it is unclear if any tax law changes would be retroactive to January 1, 2017. If they are, the IRS may have to delay the start of the 2018 filing season. The filing season typically starts in mid-January. The IRS programs its return processing systems for existing tax laws. If the tax laws change, the IRS needs to revise its processing systems and that takes time.
More tax legislation
While the details of a GOP tax bill take shape, some stand-alone tax bills have been introduced in Congress. They include bills that:
- Exempt more taxpayers from the Affordable Care Act’s individual shared responsibility requirement
- Permit non-itemizers to take above-the-line deductions for charitable contributions.
- Delay the Affordable Care Act’s health insurance provider fee.
- Make taxpayers in Puerto Rico eligible for the earned income tax credit (EITC).
- Create a tax credit for renewable chemicals.
- Treat Native American nations the same as states for certain federal tax purposes.
- Create “Move America” bonds for infrastructure improvements.
- Expand tax-free distributions from IRAs for charitable purposes.
Lawmakers have a short window between now and year-end to pass any tax bills, so we will have to wait and see what plays out.
If you have questions on how the new tax bills could effect you, contact the office today to get more information. We will be happy to meet with anyone to help better prepare you for the future.
John Pharr CPA