House Republicans Release Three Tax Reform 2.0 Bills
House Republicans recently released three bills that comprise the “Tax Reform 2.0 package.” The bills are intended to make permanent several individual and business provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that are otherwise set to eventually expire. The stated goal of the latest round of legislation is to promote new business, innovation, and family and retirement savings.
Below is a high-level summary of the key provisions in each bill.
Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760)
This bill would make permanent many of the provisions of the TCJA including, but not limited to:
- The individual income tax brackets, i.e., 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- The IRC §199A 20% deduction for the qualified business income of pass-through entities
- The $10,000 annual limit on the amount of state and local taxes (SALT) an individual can deduct
- The increased standard deduction
- The repeal of the deduction for personal exemptions
- The increased and modified Child Tax Credit
- The increased percentage limit for charitable contributions to public charities
- The repeal of the overall limitation on itemized deductions
- The modified deduction for personal casualty losses
- The increased exemption from the estate tax
- The increased Alternative Minimum Tax (AMT) exemption amount
Family Savings Act of 2018 (H.R. 6757)
This main provisions in this bill include provisions that would:
- Provide changes to rules relating to the election of “safe harbor” 401(k) status
- Repeal the maximum age for traditional IRA contributions
- Provide an exemption for individuals with certain account balances from required minimum distribution (RMD) rules
- Provide special rules for applying non-discrimination rules to protect older, longer service and “grandfathered” participants
- Establish “Universal Savings Accounts” that would allow cash contributions up to the lesser of $2,500, indexed for inflation, or the gross income of the individual. Distributions from the accounts would generally be exempt from tax
- Expand IRC §529 plans to cover expenditures related to apprenticeships, homeschooling expenses and student loan repayments
- Allows penalty-free, but not tax-free, withdrawals from qualified retirement plans for expenses related to the birth or adoption of a child. The bill limits the amount that can be withdrawn without penalty to $7,500.
American Innovation Act of 2018 (H.R. 6756)
There are two main provisions in this bill:
- Expanded Deduction for Start-Up and Organizational Costs – this bill would increase the IRC §195 deduction for certain start-up costs from $5,000 to $20,000. Taxpayers may deduct the lesser of their start-up costs or $20,000. The $20,000 amount would be reduced for taxpayers with more than $120,000 in expenses. Expenses that cannot be deducted immediately would be amortized over 180 months.
- Preservation of Start-Up NOLS and Certain Tax Credits – the bill would provide an exception to current rules that limit the use of NOLS and certain tax credits, i.e., IRC §§382 and 383, when there is an ownership change.
What does CohnReznick think?Although the three bills are collectively dubbed Tax Reform 2.0, there are three separate and distinct bills. Therefore, it is quite possible that all, none, or a combination may ultimately be enacted into law. It is currently believed that the Family Savings Act of 2018 is the bill most likely to find bipartisan support. Only time will tell the fate of these bills.
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CPA, JD, Managing Partner - Tax
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Tax Reform: The Tax Cuts and Jobs Act – What you need to know, now
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