October 2, 2017   //   Tax   //   By Tax Department

The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance have developed a framework for tax reform.

This framework serves as a template for the tax-writing committees that will develop legislation through a committee process.

Please find below excerpts from the framework;

Individuals

The current seven tax brackets will be consolidated into three brackets of 12%, 25% and 35%, an additional top rate may apply to preserve progressivity.

The framework doubles the standard deduction to:
$24,000 for married – taxpayers filing jointly, and
$12,000 for single
The personal exemption is eliminated.

The personal exemptions for dependents are repealed and there will be increases to the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law.  There will be a $500 tax credit for taxpayers with non-child dependents.

The framework repeals the alternative minimum tax.

The framework eliminates most of the itemized deductions, but retains tax deduction for home mortgage interest and charitable contributions.

The framework repeals the estate tax and the generation-skipping transfer tax (note the gift tax was not included).

Businesses

The framework allows businesses to immediately write off (or “expense”) the cost of “new investments in depreciable assets other than structures made after September 27, 2017, for at least five years.”

The current-law domestic production (“Section 199”) deduction will no longer be available.

The framework preserves business research and development (R&D) and low-income housing credits.

The deduction for interest expense will be “partially limited.”  Appropriate treatment of interest paid by non-corporates will be considered.

Small Businesses

The framework limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%.

C Corporations

The framework reduces the corporate tax rate to 20%. In addition, it “aims to” eliminate the corporate AMT and may consider reducing the double taxation of corporate earnings.

International Taxes

 100% exemption for dividends from foreign subsidiaries (in which the U.S. parent owns at least a 10% stake).

Accumulated foreign earnings will be subject to a one-time tax at two rates, a higher rate for earnings in cash and cash equivalents and lower rate for those held in illiquid assets, payable over “several years.”

To prevent profit shifting to tax havens there will be “rules to protect the US base by taxing at a reduced rate and on a global basis the foreign profits of US multinational corporations.”

Also, there will be rules that “level the playing field between US headquartered parent companies and foreign headquartered parent companies.”