A General Overview of the Proposed Tax Cuts and Jobs Act and How It Affects You

Tax reform is one of the most desired reforms of either party and it has so far proven to be one of the most difficult for any administration or Congress to deliver. With control of both houses of Congress and the White House, the GOP has seized the moment to have a turn batting the tax pinata with legislation introduced in the House of Representatives on November 2, 2017.

It should be no surprise that even the section-by-section summary weighs in at 82 pages. The Tax Cuts and Jobs Act bill itself is clocks in at 462 pages of light reading or non-prescription sleeping aid, depending upon your perspective. The good news is that the most relevant portions of this behemoth can be summarized below.

Tax Brackets: The number of brackets would shrink from seven to four but the maximum tax amount would still be limited to 39.6 percent.  The first bracket would tax at a flat 12 percent rate  those with incomes from $0 to $90,000. The second bracket would assess a 25 percent tax to those who make $90,001 to $260,000. The third bracket would tax a flat 35 percent to incomes from $260,001 to $500,000 for an individual and $1,000,000 for couples. The final bracket of 39.6 percent would apply to those making $1,000,000 or more.  The personal exemption would be eliminated, however, the standard deduction would be increased from $12,700 to $24,000.

Corporate, Estate, and Repatriation Taxes: Corporate tax rates would be cut from 35 percent to a flat 20 percent and would be designed to be permanent.  The estate tax threshold would be bumped up from $5.6 million to $10 million and then phased out over six years. Corporations with assets overseas would pay a mandatory one-time tax on those assets with illiquid assets being taxed at 5 percent and liquid assets (including cash) being taxed at 12 percent.  

Deductions: As the bill is currently written, the state and local tax (SALT) deduction which allows individuals in states with state income tax and, in some cases, sales and property taxes, to deduct those amounts from their federal taxes, would be eliminated. There has reportedly already been a compromise on this to allow for deduction of state and local property taxes of up to $10,000 but no deduction for income or sales taxes. Likewise, under the new bill only interest on home mortgage loans of up to $500,000 would be deductible rather than the current $1,000,000. The increase in the standard deduction for all taxes is increased (as described above) in part to offset the increase in the tax bracket on the lowest income earners. It may not necessarily save people money, however, as other personal deductions and a secondary standard deduction are proposed to be eliminated.

Personal deductions that would get the axe: The student-loan interest deduction, medical-expense deduction, moving deduction, and alimony-payment deduction would all be eliminated. The bill currently only expressly allows the modified home-mortgage interest deduction and the charitable giving deduction.

Repealed: Under the new bill, the alternative minimum tax and the Johnson Amendment would be repealed. Both are going to be hotly contested, but the one that will probably attract the most attention is the repeal of the Johnson Amendment which prohibits non-profit organizations that are tax exempt from explicitly endorsing political candidates.

It is important to remember that this is proposed legislation and has not been debated or adopted by both the House and Senate, let alone signed into law by the President. Nevertheless, it is never too early to begin to look at how this plan might affect your tax liabilities and to consult with the attorneys at Weisberg Kainen Mark regarding what steps, if any, might be advisable to make to your current tax planning. Call us at (305) 374-5544 today to get started.

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Written by Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL is a Miami-based law firm focused on providing comprehensive legal support to individuals and corporate entities caught up in tax controversies or charged with a criminal act. As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.