Did you realize the US income tax code has not had a major overhaul since 1986?

The GOP Tax Reform Framework has recently been released. I’ll do my best to summarize various items that have been proposed and to spell out some of the implications of the proposal- some of which may not be apparent to people that do not live and breathe the tax code. 

Keep in mind that you should only make tax planning moves and implement tax strategies around the current tax code, not guess the future. 

The proposal includes:

• Increasing the Standard Deduction.The standard deduction would increase to $24,000 for couples filing jointly and $12,000 for single filers. This would almost double the standard deductions. For most Americans, this would mean that mortgage interest no longer provides a tax benefit.  In addition, personal exemption deductions would be eliminated, so this change may not be as attractive as it sounds.
• Individual Income Tax Rate Structure Changes. There would three brackets of 12, 25 and 35 percent.The cutoff for the brackets has not been released so it is tough to assess the true impact of this.
• Significant Increase of the Child Tax Credit. The significance of the change has not been released.  Any increase in the child tax credit could be offset in losing personal exemption deduction for dependents. The phase-out limit for the child tax credit would also increase.
• Alternative Minimum Tax (AMT) Repeal. In simplistic terms, AMT is a method of calculating a tax a second way for people in certain income and deduction ranges. The individual is then assessed tax at the level of the higher of the two tax calculations. 
• Estate Tax. Currently, the estate of anyone with over $5.49 Million in assets is assessed a tax when the assets change hands. This tax would be repealed and would benefit the wealthiest of Americans.
• Lower Maximum Income Tax Rate Limit for Small Business Income. The maximum income tax rate for business income for sole proprietorships, S corporations, and partnerships would be 25 percent.
• Lower Maximum Income Tax Rate Limit for Corporations. The maximum income tax rate for business income for C corporations (publicly traded companies plus small businesses that elect to be taxed as a C corporation) would be 20 percent.
• Immediately Be Able to Expense Capital Assets. For at least five years, businesses will be able to immediately expense the cost of depreciable assets.
• Limiting Interest Deduction of C Corporations. Specifics of how much interest deduction will be limited has not been released

There will be some challenges related to implementing tax changes. As you know, there have been challenges in Washington of arriving to consensus and agreements. Will all the necessary parties get on the same page? It will also be interesting to see how the proposed structure actually takes shape.  Special interest groups that are adversely impacted or not receiving enough benefits will continue heavy lobby efforts.  That is one of the reasons our tax code gets so convoluted. 

My goal today was to update you on potential tax law changes. If you have any questions, concerns or feedback, please feel free to reach out to me.

Adam Shay, CPA (N.C. License Number 35961), MBA, is managing partner of Adam Shay CPA, PLLC. He focuses on minimizing taxes and improving the financial results of entrepreneurs, and is actively involved in supporting the Wilmington entrepreneurial and startup community. For more information, visit http://www.wilmingtontaxesandaccounting.com/ or email him at [email protected]. He can also be reached by phone at (910) 256-3456.