The tax reform bills proposed by the House and Senate contain some similar proposals, but the many differences warrant separate examination. While unknown compromises can be expected before any legislation hits the president’s desk for consideration, here are the highlights from both bills:
|HIGHLIGHTS FROM BOTH BILLS|
|House Bill||Senate Bill|
|Lowers corporate tax rate to 20% from 35% starting in 2018.
Eliminates common personal deductions: state and local taxes, personal property taxes, deduction for medical bills, unreimbursed business expenses.
Significantly reduces the mortgage interest deduction, and limits the property tax deduction.
Changes from 7 individual tax brackets to 4. People earning $500,000.00 to $1M a year get the biggest break. Some middle income earners would be bumped into a higher bracket.
Raises standard deduction to $12,000 for a single person and $24,000 for a married couple.
Eliminates personal exemptions completely. Currently, the personal exemption is $4050 per household member.
Raises child tax credit to $1600 from $1000.
Imposes a minimum tax on foreign investments of US corporations.
Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited. Lawyers, engineers, consultants, and doctors cannot take the deduction.
Changes the capital gains tax structure.
|Lowers corporate tax rate to 20% from 35% starting in 2019.
Eliminates common personal deductions: state and local taxes, property taxes, personal property taxes, home equity loan interest, unreimbursed business expenses.
Raises the income levels for personal income tax brackets and lowers tax rate for the highest income tax brackets. People earning $1,000,000.00 or more per year get the biggest break.
Raises standard deduction from $6350 to $12,000 for a single person. Child tax credit is raised to $1650 from $1000, but the dependent exemptions are eliminated completely.
Gives an income tax deduction for income from some “pass through” businesses. Those are businesses that report income on Schedule C. Deduction is limited to a % of the owner’s W-2 income. Lawyers, engineers, consultants, and doctors cannot take the deduction.
Excludes business income earned overseas. In other words, companies won’t have to pay US taxes on overseas earnings.
Imposes limited tax withholding on independent contractors.
Eliminates the 50% business entertainment deduction but keeps the 50% meals deduction.
Expands businesses that can use cash method accounting.
If you have concerns with how tax reform will affect your bottom line, talk to your accountant. The House is scheduled to vote on Thursday, November 16th, and the Senate plans to vote the week after Thanksgiving. Elected officials want to know whether constituents favor or oppose these bills. Here’s a website that will give you the contact information for your elected representatives: https://whoismyrepresentative.com/.