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December 20, 2017

Tax Reform Close to Becoming Law (article)

CBIZ helps with tax reform.Final votes on the reconciled tax reform bill are expected Wednesday with President’s Trump signature close behind. Born out of the conference committee, the reconciled tax reform bill, formerly titled the Tax Cuts and Jobs Act, includes elements of both the House version and the Senate version of the tax reform bill.

Both the House and the Senate were expected pass the bill on December 19, but the legislation hit a last-minute snag when Democrats raised objections to pieces of the legislation that violated the Byrd Rule, a requirement that all measures relate to federal revenue and spending. The Senate parliamentarian identified three things in violation: a provision expanding Section 529 savings accounts to home school expenses, a college endowment excise tax exemption for schools with fewer than 500 tuition-paying students, and the bill’s name, the Tax Cuts and Jobs Act.

With those elements removed, the Senate voted and then had to send the bill back to the House, which plans a vote Wednesday. House members voted 227-203 for the initial version earlier Tuesday.

Overview of the Final Bill

The tax reform bill generally affects tax years beginning in 2018, with some exceptions. Provisions in the reconciled bill include a variety of changes from earlier versions of the tax reform plan, as well as some similarities. Highlights include:

  • A permanent 21 percent corporate tax rate effective in 2018, representing a 40 percent decrease over the current rate of 35 percent
  • A trimmed back 20 percent deduction for qualifying pass-through income from partnerships and S corporations
  • Unlimited capital expensing of qualifying tangible assets, with increased Section 179 expensing
  • Limitations on business and personal net operating losses, and business interest deductions
  • Repeal of the corporate alternative minimum tax (AMT), but retention of the individual AMT with increased exemption amounts
  • The survival of most business credits, but repeal of DPAD
  • Permanent repeal of the individual mandate to buy health insurance coverage after 2018
  • Doubling of estate and gift tax exemptions through 2025 (approximately $11 million individual and $22 million for couples) with no decrease in rates, and return to current exemption amounts thereafter

The following individual tax provisions expire at the end of 2025:

  • Decreases in individual tax rates with seven brackets and a maximum rate of 37 percent
  • Doubling of the standard deduction but repeal of personal exemptions
  • $10,000 combined limit to state and local income and property tax deductions
  • All other itemized deductions repealed except improved charitable contributions and medical
  • Increased child care credit of $2,000, of which up to $1,400 is refundable

The bill also repeals the deduction for alimony for the payor spouse and inclusion in income for the payee spouse for any divorce or separation instrument executed after Dec. 31, 2018 (with modification exceptions).

Our series, Breaking Down the Conference Committee’s Reconciliations of Tax Reform Bill will examine the tax reform provisions in greater detail.

For up-to-date information, please visit our Eye on Washington page or contact your local tax professional.

Copyright © 2017, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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