On November 2nd, 2017 Texas Congressman Kevin Brady introduced the Tax Cuts and Jobs Act of 2017 to the House of Representatives. One of the major parts of the bill is that it would effectively reduce the tax rate for businesses and individuals. Below are a few of the bill’s highlights.
The bill, as it is currently written, would decrease low and middle income Americans’ Federal tax rates to 0%, 12%, 25%, and 35%. The highest tax rate would hold constant at 39.6%.
In addition, the bill would significantly reduce the corporate tax rate from 35% to 20% and set a flat 25% tax rate on all pass-through income. If passed, this would be the largest corporate tax cut in our nation’s history.
Other certain deductions would also change. For example, the standard deduction would almost double for both single and married Americans. All itemized deductions would disappear, except mortgage interest, charitable donations, and real estate taxes. Additionally, mortgage interest and real estate taxes would be capped.
What this means to you: Even if this bill, or a version of it, passes before the end of the year, it is highly unlikely that it will affect 2017 returns. The changes would become effective for 2018, but tax planning is even more important to ensure expenses can be taken on the 2017 return, before they disappear. More than likely, the tax reform bill will undergo serious changes before being passed, if even passed at all. While the current administration is pushing for the passage of a tax bill before the end of the year, they still do not have anywhere near enough congressional support.
Even though we are still a ways from the Tax Cuts and Jobs Act of 2017 becoming law, congressional Republicans could pass temporary tax reform, until the issue can be solved on a more permanent basis. In order for the bill to become law, both the House of Representatives and the Senate have to pass identical bills. As of Thursday, November 9th, 2017, the Senate passed a tax reform bill that varies significantly from the House’s bill. Either way, significant compromise will need to be reached, before final decisions are made.
Most likely, we are still a long way from significant tax reform.
Read the full 429 page bill here: