It would be a seismic shift in the federal income tax landscape unlike anything seen in 30 years. And it is looking more likely to actually happen, at least as of this writing.
As of December 13 and 14, reports are that a deal has been reached in the House-Senate Conference Committee that may see a bill go back for possible passage by both houses. If that happens, it goes to the President’s desk, and all indications are that he will sign it. Of course, Congressional passage would be by the slimmest of margins, so nothing is certain until the votes are in and the President signs.
Full details should be released soon, but some of what we are hearing right now is below. There are a lot of additional provisions in what could be a final bill, and some of the below may change before we have a law, of course.
Corporate tax rate deduction: The top corporate income tax rate would be reduced to 21%. This is more than the 20% that even the President had called a red line, but indications are he would sign the bill at 21%. Clearly, this is a huge change for treatment of corporate earnings.
Repeal of corporate AMT: The corporate Alternative Minimum Tax, the parallel tax system that disallows certain deductions and credits (such as the research tax credit) would be repealed – another boon to corporate taxpayers.
Passthrough tax deduction: Both the House and Senate bills had included a tax break for passthrough income (income earned by S corporations and partnerships and passed through to owners for taxation), with the Senate version including a 23% deduction on passthrough income. Reports have that at 20% in the compromise deal.
Individual tax rate deduction: The top 39.6% individual income tax rate would be reduced to 37% (the Senate had proposed 38.5%).
Mortage interest deduction debt limitation: For individuals who itemize deductions, the current $1 million debt limitation could go down to $750,000 (originally proposed at $500,000 in the House version).
State and local tax & property tax deductions: Reports of this deduction’s death may have been premature, as it may live on as part of the possibly limited property tax deduction for itemizing individuals: the potential $10,000 limitation may apply to a combination of property tax and state and local income and sales taxes.
Charitable deduction for donations involving college athletic seating: This deduction rollback has gotten less press than others, and we do not yet know if it will be in the final bill, but, if it is, it would disallow a currently allowable 80% charitable contribution deduction for donations given for seating in college athletic venues.
Estate tax threshold increase: While the estate tax may not be completely repealed, the threshold at which an estate is taxable would increase dramatically, possibly to about $11 million.
Again, more details should be released soon, so these and other provisions will be further analyzed and communicated soon. More to come!
Michael A. Carraway, Jr., CPA
Michael A. Carraway, Jr., is a partner with GranthamPoole PLLC and a recognized leader in the field of partnership and corporate taxation, having worked with many clients on entity and transaction structuring matters. He has also written, taught, and spoken on many topics in the area over the years and has served as a technical subject matter expert in several practices. Please contact Mike at firstname.lastname@example.org, www.linkedin.com/in/michaelcarraway, or 601-499-2400. CPA License # R2705
***The above does not represent tax advice. Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.