Next Critical Steps for Tax Reform

By Barton James posted 10 days ago

  
In the early morning hours of December 2, the U.S. Senate passed its version of the Tax Cuts and Jobs Act.  Now the House and Senate will conference and craft a consensus package that will go back to both chambers for a vote. President Trump and GOP leaders want the package signed in 2017, and preferably before the Christmas holidays.

What Exactly Is “Conference”
Conference is where selected members of both the U.S. House and Senate meet to reconcile differences between the respective versions of the tax reform bill.

On 12/4 Speaker Ryan Named Lawmakers for Tax Reform Bill Conference Ways and Means Committee
1. Conference Chair: Chairman Kevin Brady (R-TX)
2. Rep. Devin Nunes (R-CA)
3. Rep. Peter Roskam (R-IL)
4. Rep. Diane Black (R-TN)
5. Rep. Kristi Noem (R-SD)

For the purposes of provisions outside the jurisdiction of the Ways and Means Committee, the conferees are appointed below.
Natural Resources Committee
1. Chairman Rob Bishop (R-UT)
2. Rep. Don Young (R-AK)

Energy and Commerce Committee
1. Chairman Greg Walden (R-OR)
2. Rep. John Shimkus (R-IL)
 
What All Do They Need to Reconcile?

TAX RATE REDUCTION ON SMALL BUSINESS PROFITS:

HOUSE PASSED BILL

Reduces the top personal income tax rate applied to non-C-Corp business profits from 39.6 percent to 25 percent. The lower rates are permanent.
 
The House bill also drops the lowest tax bracket from 12 percent to 9 percent for certain small businesses. The 9% rate would apply to the first $75,000 in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income through a pass-through business and married filing jointly. (For single taxpayers, the $75,000 and $150,000 amounts would be $37,500 and $75,000, and, for heads of households, they’d be $56,250 and $112,500.) As taxable income exceeds $150,000 for married joint filers, the benefit of the 9% rate relative to the 12% rate is reduced, and it’s fully phased out at $225,000 for such filers. Businesses of all types would be eligible for the preferential 9% rate.
 
Phase in of 9 Percent Rate Over 5 tax years. The rate for 2018 and 2019 would be 11%. For 2020 and 2021, it would be 10%, and for 2022 and thereafter, it would be 9%.
 
Limitations and “Anti-Abuse Rules:” A variety of professional service businesses are excluded from the 25% rate.  In terms of how income is categorized, there is a choice: small business owners can choose to categorize 70% as wages (the individual tax rate would apply) and 30% as business income (taxable at 25% or the rate that applies), OR set the ratio of their wage income to business income based on the level of their capital investment.
 
SENATE PASSED BILL
The Senate bill adopted a 23% deduction for pass-through income, which is limited to 50 percent of wage income. The change would be temporary and expire after 2025.

The deduction would be disallowed for certain professional services subject to income limits. The new limit would be $500,000 for married filers and $250,000 for individuals, increased from $150,000 and $75,000 respectively in the introduced bill.” Publicly trade partnerships qualify for the 23% deduction, with a longer list of ineligible service providers.

Most small business owners file taxes as individuals. Non-C-Corp “pass throughs” represent roughly 95 percent of U.S. businesses, and consider that 90 percent of S-Corp employer firms, for example, have fewer than 20 employees, 98.6 percent less than 100, and 99.8 percent fewer than 500 workers.
 
SECTION 179 AND IMMEDIATE EXPENSING:
 
HOUSE PASSED BILL

In the House bill, the Section 179 expensing cap is increased from $500,000 to $5 million, with the phase-out beginning at $20 million, up from $2 million.  The bill maintains current depreciation schedules for real property. These higher levels are temporary for five years.
Immediate expensing would be in effect for five years.

SENATE PASSED BILL
The Section 179 expensing cap is expanded to $1 million, with the phase-out beginning at $2.5 million. The Senate changes are permanent.
Full immediate expensing would be in effect for five years, and phase out after year five. There is also shorter depreciation for buildings (25 years).
 
ESTATE OR “DEATH” TAX:

HOUSE PASSED BILL

The House bill phases out the death tax with its full elimination after 2024.

SENATE PASSED BILL
The Senate bill doubles the exemption level from $5.5 million to $11 million.

INDIVIDUAL INCOME TAXES:

Current brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%

HOUSE PASSED BILL
The House bill consolidates the brackets into four rates – 12%, 25%, 35% and 39.6%.

SENATE PASSED BILL
The Senate passed bill keeps the current seven individual income tax brackets and replaces them with lower brackets – 10%, 12%, 22%, 24%, 32%, 34%, and 38.5%. These changes are temporary and expire after 2025.

Courtesy Tax Foundation (TaxFoundation.org)

STANDARD DEDUCTION:

Current deduction: Single, $6350. Married, $12,700.

HOUSE PASSED BILL
The bill increases the standard deduction to $12,200 for single filers, $18,300 for heads-of-households, and $24,400 for joint filers.

SENATE PASSED BILL
The bill increases the standard deduction to $12,000 for single filers, $18,000 for heads-of-households and $24,000 for joint filers.

CHILD TAX CREDIT:
Current credit: $1,000 for each child. Phases out at $110,000 for married couples.

HOUSE PASSED BILL
The House adopted a $1600 credit and a $300 credit for each parent and non-child dependent. The credits phase out at $230,000 (married couples.)

SENATE PASSED BILL
The Senate passed a $2,000 credit and a $500 credit for non-minor child dependents. The credits phase out at $500,000 (married couples.)

STATE AND LOCAL TAX DEDUCTION:

HOUSE PASSED BILL
Repeals the state and local tax deduction and caps the property tax deduction at $10,000.

SENATE PASSED BILL
Repeals the state and local tax deduction and caps the property tax deduction at $10,000.

MORTGAGE INTEREST DEDUCTION:

HOUSE PASSED BILL

Under the House bill, current mortgages won’t be affected. New mortgages, however, would be capped at $500,000 for purposes of the deduction.  The deduction would only apply to a primary residence.

SENATE PASSED BILL
The deduction would remain in place for mortgages up to $1,000,000.  The deduction for equity debt, that is re-financing not related to home improvement, would be eliminated.

OBAMACARE’S INDIVIDUAL MANDATE:

HOUSE PASSED BILL
No action taken.

SENATE PASSED BILL
Repeals Obamacare’s individual mandate.

MEDICAL EXPENSE DEDUCTION

HOUSE PASSED BILL
Repeals the deduction.

SENATE PASSED BILL
For tax years 2017 and 2018, the medical expense deduction may be taken if these expenses exceed 7.5 percent, rather than 10 percent under current law, of adjusted gross income.

ACCA Urges Passage
ACCA has been pushing for the inclusion of our tax reform priorities in the Senate, reminding leaders of the importance small business owners play- and the need to not just look after Corporate America. Our meetings with your U.S. Senators to include our priorities and urge them to pass the Tax Cuts and Jobs Act paid off. Based on the input from ACCA members, we are confident Tax relief in 2018 will fuel confidence and help the HVACR contractors, to stay innovative, competitive, and make greater investments in your company.

0 comments
310 views

Permalink