Legislative

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  • Tax Reform Review - April 23, 2018
  • In December, Congress voting along party lines gave the President a Christmas present - resulting in the greatest changes in decades to the U.S. tax code.
  • Tax reform has now become law and there has been some time to evaluate some of the changes.
  • From 2018 through the end of 2025, the exemptions for the estate and generation skipping transfer tax would double. In 2026 the exemptions will revert back to their current levels, indexed for inflation.
  • Rather than repealing the work opportunity tax credits, they are extended to the end of 2019; giving another chance to make them permanent.
  • The individual mandate under the Affordable Care Act, was repealed.
  • A few additional thoughts on the new law - first after having read this tax bill over and over, this is a VERY COMPLICATED tax bill and contains many more changes than the highlights would lead one to think. Initial thoughts are that the new pass-through provisions make most of the other tax code sections look like they're simple! There will be hundreds of pages of IRS regulations we're going to see on just this section alone.
  • It appears that the upper middle-class taxpayers who itemize and live in states with higher state and local income taxes and/or have higher property taxes will end up with a tax increase right away - and will do better when and if the provisions sunset in 2025.
  • On a positive side, many non-service small businesses who operate as pass-throughs will end up ahead. A lot of the changes were included in the final bill - for instance, trusts and estates are now entitled to use the pass-through deductions. Pass-throughs are entitled to take advantage of the state and local income tax and property tax deductions. The cut off for allowing 100% deduction of business interest and cash method of accounting went with the higher $25 million threshold. And the step up in basis was retained.
  • A big loss, that was initially reported as a win, is that the AMT is retained for individuals with a fairly low exemption. Initially this was reported as the exemption increasing up to $500k for an individual and a $1m for a couple. What was raised to that level were the threshold amounts which are not nearly as important for most small business owners.
  • And one final thought - it will be interesting to see what the aftershocks will be of such a major piece of tax legislation. In the past a tax bill of this magnitude would have been vetted over a number of years and the public and tax experts would have been able to weigh in with their concerns and suggestions. Businesses will barely have time to process the changes, almost all of which start immediately. There will be unintended winners and losers and the IRS will have a huge role in developing regulations to implement this monster of a bill, with a reduced budget. Stay tuned as we will continue to update you!