Every ten years or so we get the rare opportunity to review a new proposed tax law.
This is one of those years!
Instead of waiting for the new tax laws to be finalized and passed through Congress into law, we first study all the proposals and begin finding ways to make sure we maximize your tax deductions and minimize your taxes.
Here is a summary of the changes that appear to have the “most likelihood” of being passed and to impact your individual and business outlook for 2017 and beyond.
As more details emerge from President Donald Trump’s tax proposal, we will continually send updates on what you and your business can expect from the impending tax reform.
Although there are sure to be changes before the final tax bill passes, the highlighted potential tax changes will be of interest to you.
Proposed changes in tax rates and deductions include:
- Reducing the business income tax rate to 20% for corporations and 25% for pass through businesses. The bill would include safeguards to prevent a loophole that allows individuals to reclassify as businesses.
- Nearly double the standard deduction for married filing jointly and for single filers; increased child tax credit; elimination of personal exemptions
- Streamline the current seven individual tax brackets to four – 12%, 25%, 35% & 39.6%. The threshold for the top tax bracket (married couples, filing jointly) will move to $1 million (up from $470,000), but remain at a 39.6% marginal rate. A new bracket will apply the second-highest 35% tax rate to income between $260,000 and $1,000,000.
- The mortgage interest deduction will be capped for newly issued mortgages at $500,000 and will be available only for primary residences. Existing mortgages are grandfathered for the immediate future, but could eventually be subject to phase-out.
- The bill also introduces a $10,000 cap on the state and local property tax deduction and the elimination of the state and local income tax deduction as well as the elimination of the unreimbursed medical expense deduction.
- Repeal corporate and individual Alternative Minimum Tax (AMT is the additional tax, which is added to your regular tax to make sure that under the present law everyone pays approximately 30% in taxes.)
- The exemption for the Estate Tax is doubled to $11.2 million per person for six years, after which the tax is eliminated (estate tax rate is currently 40%).
The Tax Reform Bill is expected to be enacted before the end of the year and the provisions likely to be effective for 2018. However, there is increasing pressure to make certain measures retroactive to 2017 to spur economic growth. The upcoming days and weeks will see tweaked versions of the proposed bill in order to win over support and passage of the final bill. It will be vitally important to stay on top of these changes and we will continually advise of potential tax impact on both individuals and businesses as new details are released. Proper tax planning will be essential to take advantage of the impending tax breaks and maximize expiring deductions.