The Senate Republicans’ Tax Bill introduced Thursday breaks significantly with the one the House of Representatives introduced earlier. There are many issues to reconcile and little time before the year-end deadline Congress has set to pay the new Tax Law.
Where the House bill would create four income tax rates (top rate of 39.6%), the Senate bill would employ a seven-bracket system (top rate 38.5%). The top rates would start for single taxpayers with income exceeding $500 thousand and for married taxpayers with income over $1 million.
The Senate bill would raise the standard deduction as the House bill does to $12,000 for single individuals and $24,000 for married couples. However, the Senate bill, unlike the House bill, preserves the additional standard deduction for elderly and blind taxpayers.
The Senate bill would allow individuals to deduct 17.4% of “domestic qualified business income” from pass-through entities. The deduction would not apply to specified service businesses unless taxable income does not exceed $150,000. The deduction would be limited to 50% of the W-2 wages. The House bill would tax pass-through entity income at a maximum rate of 25% but would also not allow the 25% for specified service activities (law firms, accounting firms, architects)
The Senate bill would increase the child tax credit to $1,650 (as opposed to the $1,600 House bill). It would also allow a $500 credit (as opposed to a $300 House bill) for dependents other than children. The Senate bill also retains the adoption credit and the child care credit while the House bill eliminates them.
The Senate bill would eliminate the deduction for state and local taxes entirely. The House bill would allows a deduction for property taxes up to $10,000.
The Senate bill would retain the medical expense deduction for medical expenses exceeding 10% of AGI while the House bill eliminates the deduction.
While the House bill would limit the deductibility of mortgage interest to $500,000 of acquisition indebtedness, the Senate bill would retain the current $1 million mortgage but would eliminate the deduction for home equity indebtedness.
Both the House and the Senate bill would lower the corporate rate to 20% but the Senate bill would delay the lower rate to 2019.
The House bill combines the American Opportunity Credit, the Hope Credit and the Lifetime Learning Credit into one credit that provides 100% tax credit on the first $2,000 and a 25% on the next $2,000 for tax years after 2017.
The House bill would eliminate the deduction for student loan interest where the Senate would retain it.
The House bill provides benefits for expensing capital purchases as well.
There are many differences to reconcile before one Tax Bill can be voted on and time is short. Since both bills would eliminate state income tax, planning is very important. We will be happy to offer a consultation for individuals wondering how to plan for this new bill. Please call our office if you would like more information.