Ask The Expert with Wegner CPAs

Question:

There has been a lot of talk lately about Federal tax reform. What might this mean for me?

Answer:

On September 27, 2017, the Trump administration and select members of Congress introduced something called the “Unified Framework For Fixing Our Broken Tax Code”. To be clear, this is nothing more than preliminary discussion – no actual legislation has been passed at this time. This framework being discussed has the following components for businesses and individuals.

Business reforms: Overall, the idea is to lower overall tax rates for businesses. The proposed corporation tax rate would be reduced from 35% to 20%. For pass-through entities, such as subchapter S Corporations and partnerships, the rate would be reduced from an individual’s ordinary rate (as high as 39.6% currently) to 25%. In order to help make these lower rates work from a budget standpoint, the framework will reduce or eliminate many special deductions and credits for businesses, such as the Section 199 Domestic Production Activities Deduction. However, two credits that would be retained under this framework would be the Research and Development credit and the Low Income Housing credit.

Individual reforms: Under the current Code, there are seven tax brackets for individuals. This framework would reduce that to three (12%, 25%, and 35%); it also leaves open the possibility that “an additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code.” The Alternative Minimum Tax (AMT) would be repealed altogether. The standard deduction would be increased to $24,000 for married taxpayers filing jointly and $12,000 for single filers; however, the deduction for personal exemptions would be eliminated. Regarding itemized deductions, mortgage interest and charitable contribution deductions would be retained, but many others (including the deduction for state and local taxes) would be eliminated. Tax benefits that “encourage work, higher education, and retirement security” would be retained. The framework also states that it will “significantly increase” the child tax credit, but it doesn’t specify the amount. Lastly, under this framework, the estate tax would be repealed.

Naturally, these are just proposed ideas at this time. Time will tell which of these items of tax reform will actually be passed, if any. Stay tuned!

-John Folsom, Senior Manager Wegner CPAs

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