Corporate and Business Provision House Bill (HR 1) Senate Bill Final Bill

Transcription

1 Selected provisions of the House and Senate tax reform bills as passed by both houses of Congress which resulted in the final bill in the far right column. Introduction: This summary contains what ZLQ believes to be the most significant provisions affecting our clients. The House and Senate bills are very complicated and our summary does not pretend to be complete. Corporate and Business Corporate Alternative Minimum Tax Repealed Corporate AMT would not be repealed Same as the House bill Effective for tax years beginning after 12/31/2017 Corporate Tax Rate Flat 20% rate for most corporations and flat Flat 20% rate for all corporations Flat 21% rate for all corporations 25% rate for personal service corporations Effective for tax years beginning after 12/31/2017 Effective for tax years beginning after 12/31/2018 Effective for tax years beginning after 12/31/17 Long term Contracts $10 million average gross receipts exception to $10 million average gross receipts exception to Same as the House bill use of the percentage of completion method use of the percentage of completion method increased to $25 million increased to $15 million Effective for contracts entered into after 2017 Effective for contracts entered into after 2017 Bonus Depreciation Bonus percentage increased from 50% to 100%; Bonus percentage increased from 50% to 100% for 9/27/17 through Bonus percentage increased from 50% to 100% for 9/27/17 through 12/31/2022, then decreasing 20% per year through 12/31/ /31/2022, then decreasing 20% per year through 12/31/2027 Qualified property would include used property Qualified property would include used property Effective for property placed in service after Effective for property placed in service after Effective for property placed in service after 9/27/2017 and before 1/1/2023 9/27/2017 and before 1/1/2028 9/27/17 and before 1/1/2028 Depreciation for "Luxury" Autos Raises bonus depreciation from $8,000 to $16,000 Increases annual depreciation limitations Same as the Senate bill Effective for vehicles placed in service after Effective for vehicles placed in service after 9/27/2017 and before 1/1/ /31/2017 Depreciation Period for Real Estate No provision Nonresidential and residential real property Qualified improvement property depreciated over 15 years depreciated over 25 years; Qualified improvement Effective for property placed in service after 12/31/17 property depreciated over 10 years Effective for property placed in service after 12/31/2017 Business Interest Deduction Limits deduction for net interest expense for businesses to the Limits deduction for net interest expense for businesses to the Same as the Senate Bill except for adjusted taxable income is sum of 30% of adjusted taxable income, business interest income, sum of 30% of adjusted taxable income, business interest income, computed prior to deductions allowable for depreciation, and floor plan financing interest and floor plan financing interest amortization, or depletion, and without regard to Section 199 for Exempts businesses with average annual gross Exempts businesses with average annual gross tax years beginning before 1/1/22. receipts of $25 million or less (related businesses receipts of $15 million or less (related businesses aggregated for this purpose) aggregated for this purpose) Effective for tax years beginning after 12/31/2017 Effective for tax years beginning after 12/31/2017 Domestic Production Deduction Repealed for all taxpayers Repealed for C corporations for tax years beginning after 12/31/18 Same as the House bill Section 199 Repealed for all other taxpayers for tax years beginning after Effective for tax years beginning after 12/31/ /31/2017 Section 179 Expensing Annual limitation increased to $5 million with Annual limitation increased to $1 million with phaseout beginning Same as the Senate bill phaseout beginning at $20 million; amounts at $2.5 million; amounts indexed for inflation; significant changes indexed for inflation made to qualifying real property Effective for tax years beginning in 2018 through 2023 Effective for property placed in service in tax years beginning after 12/31/2017

2 Net Operating Loss Deduction Limits deduction to 90% of taxable income; repeals Limits deduction to 90% of taxable income for tax years beginning Limits deduction to 80% of taxable income; repeals most most carrybacks after 12/31/17 and to 80% of taxable income for tax years carrybacks Effective for tax years beginning after 12/31/2017 beginning after 12/31/2022; repeals most carrybacks Effective for tax years beginning after 12/31/2017 Like Kind Exchanges Repeals like kind exchanges except for real property; Repeals like kind exchanges except for real property; Same as the Senate bill Effective for exchanges completed after 12/31/2017 Effective for exchanges completed after 12/31/2017 Entertainment Expenses Disallows deductions for entertainment, amusement, Disallows deductions for entertainment, amusement, or Same as the Senate bill or recreation activities; Disallows deductions for recreation activities; Disallows deductions for many employee many employee "perks" such as athletic facilities "perks" such as athletic facilities; Repeals deduction for meals provided for convenience of employer Effective for amounts paid or incurred after 2017 Effective for amounts paid or incurred after 2017 except for meals for convenience of employer provision which is effective for amounts paid or incurred after 12/31/2025 Self Created Property and Patents Generally repeals favorable treatment of gains from No provision Same as the House bill self created patents, inventions, and similar property. Effective for dispositions after 2017 Work Opportunity Tax Credit Repealed No provision No provision Effective for wages paid or incurred to individuals who begin work for employer after 12/31/2017 Pass Through Tax Treatment The bill provides a somewhat complicated scheme The bill provides a deduction equal to 23% of domestic The bill provides a deduction equal to 20% of domestic "qualified which results in taxing "qualified business income" "qualified business income" (QBI) from pass through business income" (QBI) from pass through entities (including (QBI) from pass through entities (including businesses entities (including businesses taxed as partnerships, S businesses taxed as partnerships, S corporations and sole taxed as partnerships, S corporations, and sole corporations, and sole proprietorships). QBI includes proprietorships). QBI includes generally all domestic business proprietorships) at a maximum rate of 25%. QBI is generally all domestic business income other than income other than investment income. is determined differently for (a) passive business investment income. The deduction is limited to 50% The deduction is limited to (a) 50% of the taxpayer's share of W 2 income; (b) active business income; and (c) personal of the taxpayer's share of W 2 wages paid by the business. wages paid by the business or (b) the sum of 25% of the taxpayer's service activity income. QBI is equal to 100% of net The wage limitation would not apply to married taxpayers share of W 2 wages paid by the business plus 2.5% of the unadjusted income from passive business activities plus the with taxable income of less than $500,000 and other basis, immediately after acquisition, of all qualified trade or "capital percentage" of active business income. taxpayers with taxable income of less than $250,000. business property used in the production of QBI. The "capital percentage" default rate is 30% but a For taxpayers with income from "specified service The wage limitation would not apply to married taxpayers with taxpayer can elect to use a rate determined from the businesses", the deduction would only apply if taxable income of less than $315,000 and other taxpayers with presumed rate of return on the adjusted basis of assets taxable income doesn't exceed $500,000 if married taxable income of less than $157,500. used to conduct the trade or business. No amount filing joint or $250,000 for other individuals. For taxpayers with income from "specified service businesses", the of personal service activity income (health, law, A specified service trade or business includes one deduction would only apply if taxable income doesn't exceed engineering, architecture, accounting, actuarial involving investing, investment management, trading, $315,000 if married filing joint or $157,500 for other individuals. science, performing arts, consulting, athletics, and or dealing in securities. A specified service trade or business includes one involving financial and brokerage services) is included in QBI. Effective for tax years beginning after 12/31/2017 and investing, investment management, trading, or dealing in securities, Married taxpayers earning less than $150,000 and single before 1/1/2026 and excludes engineering and architecture services. taxpayers earning less than $75,000 would be eligible Clarifies that the 20% deduction is not allowed in computing for a reduced rate of 9% (instead of 12%) on QBI up adjusted gross income (AGI), and instead is allowed as a to $75,000, subject to a phaseout. deduction reducing taxable income, and (2) that the deduction Effective for tax years beginning after 12/31/2017 would be available to taxpayers regardless of whether or not they itemize their deductions. Trusts and estates are eligible for the 20% deduction. Effective for tax years beginning after 12/31/2017 and before 1/1/2026

3 Individual Affordable Care Act Individual No provision Reduces individual shared responsibility payment to zero Same as the Senate bill Mandate Effective for months beginning after 12/31/2018 Individual Tax Rates Creates 4 tax brackets Married filing joint and single Creates 7 tax brackets Married filing joint and single Creates 7 tax brackets Married filing joint and single rates are as follows: rates are as follows: rates are as follows: Married filing jointly Married filing jointly Married filing jointly 12% taxable income up to $90,000 10% taxable income up to $19,050 10% taxable income up to $19,050 25% over $90,000 up to $260,000 12% over $19,050 up to $77,400 12% over $19,050 up to $77,400 35% over $260,000 up to $1,000,000 22% over $77,400 up to $140,000 22% over $77,400 up to $165, % over $1,000,000 24% over $140,000 up to $320,000 24% over $165,000 up to $315,000 32% over $320,000 up to $400,000 32% over $315,000 up to $400,000 Married filing jointly Long term capital gain rates 35% over $400,000 up to $1,000,000 35% over $400,000 up to $600,000 0% taxable income up to $77, % over $1,000,000 37% over $600,000 15% over $77,200 up to $479,000 20% over $479,000 Married filing jointly Long term capital gain rates Married filing jointly Long term capital gain rates 0% taxable income up to $77,200 0% taxable income up to $77,200 Single 15% over $77,200 up to $479,000 15% over $77,200 up to $479,000 12% taxable income up to $45,000 20% over $479,000 20% over $479,000 25% over $45,000 up to $200,000 35% over $200,000 up to $500,000 Single Single 39.6% over $500,000 10% taxable income up to $9,525 10% taxable income up to $9,525 12% over $9,525 up to $38,700 12% over $9,525 up to $38,700 Single Long term capital gain rates 22% over $38,700 up to $70,000 22% over $38,700 up to $82,500 0% taxable income up to $38,600 24% over $70,000 up to $160,000 24% over $82,500 up to $157,500 15% over $38,600 up to $425,800 32% over $160,000 up to $200,000 32% over $157,500 up to $200,000 20% over $428,800 35% over $200,000 up to $500,000 35% over $200,000 up to $500, % over $500,000 37% over $500,000 Single Long term capital gain rates Single Long term capital gain rates 0% taxable income up to $38,600 0% taxable income up to $38,600 15% over $38,600 up to $425,800 15% over $38,600 up to $425,800 20% over $428,800 20% over $428,800 Generally effective for tax years beginning after 2017 and Generally effective for tax years beginning after 2017 and before 2026 before 2026 Standard Deduction Increased standard deductions are: Increased standard deductions are: Same as the Senate bill Married filing joint $24,400 Married filing joint $24,000 Single with at least one qualifying child $18,300 Single with at least one qualifying child $18,000 Single $12,200 Single $12,000 Personal Exemption Deduction Repealed Suspended for tax years beginning after 12/31/2017 Same as the Senate bill with several modifications to the and before 1/1/2026 withholding rules Alternative Minimum Tax Repealed Retains AMT but makes changes Retains AMT but makes changes Miscellaneous Itemized Deductions Repeals deduction for employee business expenses Suspended for tax years beginning after 12/31/2017 Suspended for tax years beginning after 12/31/2017 other than reimbursed expenses and before 1/1/2026 and before 1/1/2026

4 Overall Limit on Itemized Deductions Repeals 3% cutback of itemized deductions for Suspended for tax years beginning after 12/31/2017 Same as the Senate bill high income taxpayers and before 1/1/2026 Mortgage Interest Deduction Deduction only allowed for taxpayer's principal Current acquisition indebtedness limit of $1 million Deduction only allowed for taxpayer's principal residence and only residence and only for first $500,000 of acquisition indebtedness retained; Interest deduction for home equity for first $750,000 of acquisition indebtedness for debt incurred after indebtedness suspended for tax years beginning after 12/15/17. The limitation reverts back to $1,000,000 regardless of Effective for debt incurred after 11/2/ /31/2017 and before 1/1/2026 when the debt was incurred for tax years beginning after 12/31/25 Interest deduction for home equity indebtedness suspended for tax years beginning after 12/31/17 and before 1/1/26 State and Local Tax Deduction Repeals itemized deduction for state and local income Suspends itemized deduction for state and local income Allows individuals to deduct only state, local and foreign property and sales tax; Allows individuals to deduct up to and sales tax; Allows individuals to deduct up to taxes and state and local sales taxes when paid or accrued in $10,000 in state and local property taxes $10,000 in state and local property taxes for years beginning after carrying on a trade or business and would disallow a deduction for 12/31/2017 and before 1/1/2026 individual, state and local income taxes. Individuals may elect to deduct sales, income, or property taxes up to $10,000 ($5,000 if married filing separately) for tax years beginning after 12/31/17 and before 1/1/26. Beginning after 12/31/17, state and local income taxes paid in a tax year beginning before 1/1/18 are treated as if paid on the last day of the tax year for which such tax is imposed. Charitable Contributions Increases adjusted gross income limitation from 50% Increases adjusted gross income limitation from 50% Same as the Senate bill to 60%; repeals 80% deduction for contributions made to 60% effective for contributions made in tax years for university athletic seating rights, resulting in the entire beginning after 2017 and before 2026; deduction being disallowed repeals 80% deduction for contributions made for university Effective for contributions made in tax years beginning athletic seating rights effective for contributions made after 2017 in tax years beginning after 2017 which results in the entire deduction being disallowed Personal Casualty Loss Deduction Repealed Repealed except for federally declared disasters Same as the Senate bill Effective for tax years beginning after 12/31/2017 and before 1/1/2026 Medical Expense Deduction Repealed Medical deduction AGI floor reduced to 7.5%; no AMT preference Same as the Senate bill Effective for tax years beginning after 12/31/16 and before 1/1/19 Alimony Payments Deduction for alimony payments repealed; payee No provision Deduction for alimony payments repealed; payee not required to include alimony payments in income not required to include alimony payments in income Effective for divorce decrees and similar agreements Effective for divorce decrees and similar agreements entered into after 2017 entered into after 2018 Moving Expense Deduction Repealed except for members of the armed forces; Suspended for years beginning after 12/31/2017 and before Same as the Senate bill Employer reimbursements included in income 1/1/2026 except for active duty members of the armed forces; Employer reimbursements included in income for same time period Child Tax Credit/Family Tax Credit Credit for children under age 17 increased to $1,600; Credit for children under age 18 increased to $2,000; Credit for children under age 17 increased to $2,000; new credit allowed for other children, non child new credit allowed for other dependents equal to new credit allowed for other dependents equal to dependents, and taxpayer and spouse equal to $300 $500 each; income limits apply $500 each; income limits apply each; income limits apply Effective for tax years beginning after 12/31/2017 and ending Effective for tax years beginning after 12/31/2017 and ending and ending before 1/1/2026 before 1/1/2026 before 1/1/2023

5 Repeal of Credit for Plug in Repealed No provision No provision Electric Vehicles Effective for vehicles placed in service for tax years beginning after 2017 Interest Deduction for Student Repealed No provision No provision Loans Deduction for Qualified Tuition and Repealed No provision No provision Related Expenses Exclusion for Employer Provided Limited to $50,000 and phased out for high income No provision No provision Housing individuals; No exclusion allowed for 5% owner Gain from Sale of Principal Residence Replaces requirement that taxpayer live in residence for 2 of Replaces requirement that taxpayer live in residence for 2 of No provision previous 5 years with requirement that taxpayer live in residence previous 5 years with requirement that taxpayer live in residence for 5 of previous 8 years; exclusion available only once every 5 for 5 of previous 8 years; exclusion available only once every years; exclusion phases out as adjusted gross income exceeds 5 years; $250,000 ($500,000 for joint filers) Effective for sales and exchanges after 12/31/2017 and Effective for sales and exchanges after 2017 before 1/1/2026 Roth IRA conversion recharacterization Repeals ability of taxpayer to recharacterize a conversion Repeals ability of taxpayer to recharacterize a conversion Recharacterization cannot be used to unwind Roth IRA of a traditional IRA to a Roth IRA of a traditional IRA to a Roth IRA conversions but is still allowed with respect to other contributions. Effective for taxable years beginning after 2017 Effective for plan years beginning after 12/31/2017 Effective for taxable years beginning after 2017 Estates, Gifts & Trusts Estate and Gift Taxes Estate and Gift tax exclusion amount increased to Estate and Gift tax exclusion amount increased to Same as the Senate bill $10 million adjusted for inflation effective for $10 million adjusted for inflation effective for decedents dying and gifts made after 2017; decedents dying and gifts made after 2017 and before Repeals federal estate tax effective for decedents dying 2026; No repeal of estate tax in the future after 2024; Retains step up in basis to fair market value; Reduces federal gift tax rate to 35% for gifts made after 2024 Generation Skipping Tax Generation Skipping Tax exemption increased to Generation Skipping Tax exemption increased to Same as the Senate bill $10 million adjusted for inflation effective for $10 million adjusted for inflation effective for generation skipping transfers made after 2017; generation skipping transfers made after 2017 and Repeals generation skipping tax effective for before 2026; No repeal of generation skipping tax transfers made after 2024 in the future Some but not all of the material in this report is sourced from Bloomberg BNA's summary of tax reform