Overhaul of Tax System is Almost Here
Dear Clients and Friends,
The current tax proposals are the most far reaching and largest overhaul to the tax code since Ronald Reagan rewrote it in 1986. While the proposals are being advertised as a $1.4 trillion tax cut, they have three other goals. To spur economic growth, to simplify tax filing for a large part of the population and allow them to file a one page return, and to encourage companies to bring back billions of dollars in profits they have parked overseas and to make the US the preferred place for corporations to operate and invest. While taxes may be easier for the 80% of the population that will be able to file a simple one page tax return, it seems taxes will be more complicated for everyone else.
After the changes, many individuals and businesses will pay less tax. But others will be hurt or not benefit at all, unless they do tax planning and restructure how they operate. Active and Passive business owners who plan well may pay less tax, even with the loss of the state tax deduction. Professionals, Taxpayers in Specified Service Trades, and Employees with large incomes will end up in the highest tax brackets and may need tax planning the most. Since state income taxes will no longer be deductible for many taxpayers, there is a huge incentive to move outside of areas with high state income taxes.
There are two competing tax proposals that have passed. The differences between the House plan and the Senate plan have to be reconciled in committee. To pass this year, the final reconciled version has to be voted on before the holiday break. In the Senate, passage hangs by a thread with only a few votes to spare. In order to keep every last vote in the Senate, legislative experts feel that when the different plans go to conference and get reconciled, it is mostly the Senate provisions that will survive. Since the changes in both the House and Senate plans are pretty similar, items from both plans are intermingled throughout this article and used interchangeably.
Right now we can only speculate on what will finally pass and the tax planning that will be allowed. Click to read full tax analysis