This Issue - October 2017

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Michael D. Gottshall, CPA | Partner

 

White House Framework for Tax Reform

 

President Trump and Republican leaders in Congress unveiled a framework for tax reform on September 27. The nine-page framework broadly describes tax proposals ranging from lower rates for individuals and businesses to repeal of certain tax preferences, but it leaves actual legislative language to congressional tax writing committees. Democrats, who were not involved in the release of the proposals, expressed support for middle-class tax relief but cautioned they would work to defeat proposals that cut taxes for higher-income taxpayers. The proposal may also hit a roadblock from lawmakers who want deficit-neutral tax reform.

Framework

According to the framework, “President Trump has laid out four principles for tax reform: First, make the tax code simple, fair and easy to understand. Second, give American workers a pay raise by allowing them to keep more of their hard-earned paychecks. Third, make America the jobs magnet of the world by leveling the playing field for American businesses and workers. Finally, bring back trillions of dollars that are currently kept offshore to reinvest in the American economy.”

Individuals

The current seven tax rates for individuals would be consolidated into three: 12, 25 and 35 percent. The Trump/GOP plan does not describe the income levels for the proposed rates. The framework also calls for an unspecified "additional top rate, [which] may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers." No mention was made within the framework of the fate of the current zero, 15 and 20 percent capital gains rates.

The Trump/GOP plan would increase the standard deduction for individuals to $24,000 for married taxpayers filing jointly and $12,000 for single filers. The framework, however, would repeal the personal exemption for dependents but "significantly" increase the child tax credit. A new non-refundable credit for non-child dependents would also be created. The Trump/GOP plan points out that "the typical family" now in the current 10-percent bracket that would be subject to the 12-percent rate would be better off due to the larger standard deduction, child tax credit and "additional tax relief that will be included during the committee process."

As with the rate cuts, the proposals for individual tax preferences leave many details to the House and Senate tax writing committees. Popular individual tax preferences, such as the deduction for charitable giving and the home mortgage interest deduction, would apparently be unchanged. However, the Trump/GOP plan calls for eliminating "most itemized deductions." Although not specifically mentioned, it appears to eliminate the itemized deduction for state and local income and property taxes.

Also slated for elimination are the federal estate tax, the generation-skipping transfer tax, and the Alternative Minimum Tax (AMT). The AMT generates significant revenues, and some lawmakers may work to retain it.

Businesses

The corporate income tax rate would fall from 35 percent to 20 percent under the proposal. Special rules would give pass-through businesses a top tax rate of 25 percent. Administration officials have said that legislation would be put in place to prevent abuse. The framework also "aims to eliminate the corporate AMT."

The framework allows businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years.

Some tax preferences for businesses would apparently be retained and others eliminated. The Trump/GOP plan calls for keeping the research tax credit and tax incentives for low income housing. The domestic production activities deduction, however, would be eliminated.

International

The Trump/GOP plan calls for a "100-percent exemption for dividends from foreign subsidiaries (in which the U.S. parent owns at least a 10-percent stake)." Further, "to transition to this new system, the framework treats foreign earnings that have accumulated overseas under the old system as repatriated."

Road Ahead

The tax writing committees—the House Ways and Means Committee and the Senate Finance Committee (SFC)—are tasked with writing tax reform legislation. Both committees have held tax reform hearings over the past few years. Republicans on the SFC have a slim majority, so tax reform legislation may not only move more slowly in the SFC, it may also take a different path from the Trump/GOP framework.

White House

President Trump discussed his administration and top congressional leaders’ joint framework on September 27 during a speech in Indiana. "For several months, my administration has been working closely with Congress to development a framework for tax reform—over the next few months the House and Senate will build on this framework…," Trump said. According to Trump, the framework shows commitment that tax reform will benefit low-to-middle income households, not the wealthy.
Trump also discussed the importance of having a bipartisan approach to tax reform. "Tax reform, historically, has not been a partisan issue, and it does not have to be a partisan issue today," Trump said.

Note that except for the start date of September 27, 2017, the framework does not designate any definite effective date for any other provision, apparently leaving January 1, 2018 effective date for other aspects of tax reform open to negotiation.

Please do not hesitate to call us if you have any questions. We will monitor the progress made on tax reform and let you know what moves you should make in order to best benefit from the new tax law.

 

More Articles:

Tax Alerts
Tax Briefing(s)

Tax reform discussions continue on Capitol Hill 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. President Trump and Republicans in Congress have set out an ambitious schedule of passing a tax reform bill before year-end. 


Year-end tax planning can provide most taxpayers with a good way to lower a tax bill that will otherwise be waiting for them when they file their 2017 tax return in 2018. Since tax liability is primarily keyed to each calendar tax year, once December 31, 2017 passes, your 2017 tax liability for the most part – good or bad – will mostly be set in stone.


As the 2018 filing season nears, the IRS is reminding taxpayers that the Affordable Care Act (ACA) remains on the books. The ACA’s reporting requirements for individuals have not been changed by Congress. At the same time, the Trump Administration has proposed administrative changes to the ACA, which could expand health reimbursement arrangements (HRAs), the use of short-term, limited duration health insurance, and association health plans.


Holiday gifts made to customers are generally deductible as ordinary and necessary business expenses as long as the taxpayer can demonstrate that such gifts maintain or improve customer goodwill. Such gifts must bear a direct relationship to the taxpayer's business and must be made with a reasonable expectation of a financial return commensurate with the amount of the gift. However, the $25 annual limitation per recipient on deductibility is applicable to holiday gifts, unless a statutory exceptions applies.


For purposes of federal tax, employers must withhold and pay FICA taxes (7.65%) if they paid a household employee cash wages of at least $2,000 in 2016 or in 2017 ($2,100 in 2018). Employers must pay FUTA tax (6%) if they paid total cash wages of at least $1,000 in a calendar quarter to household employees. A homeowner may be an “employer” to a housekeeper; or, if enough evidence is shown, merely a recipient of services by an independent contractor or self-employed individual.


As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of November 2017.


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