Are we entering “the second phase” of tax reform?

On September 13th, the House Ways and Means Committee passed three separate bills that will be the cornerstone of what is being referred to as Tax Reform 2.0.  A full House vote on the bills is expected to take place at the end of September or in October. If the bills pass the full House, it’s not expected that the legislation will be taken up in the Senate before the midterm November elections. However, experts believe the provisions on retirement savings could eventually find bipartisan support. A major sticking point is the estimated price tag of the legislation: $627 billion over the next decade, according to a recent analysis by the Joint Committee on Taxation.

The three-bill package focuses on making certain provisions of the Tax Cuts and Jobs Act (TCJA) permanent, promoting retirement savings, and encouraging innovation. Let’s go through each of the three bills so you can gain a better understanding of what this might mean for you and your business.

Protecting Family and Small Business Tax Cuts Act

Many provisions of the TCJA affecting individuals are set to expire after 2025. The proposed Protecting Family and Small Business Tax Cuts Act of 2018 seeks to make permanent nearly all of the provisions that would expire, including:

• the change in individual tax rate brackets,
• the increase in the standard deduction,
• the elimination of personal exemptions,
• the limitation on state and local tax deduction ($10,000 maximum),
• the limitation on the qualified mortgage interest deduction,
• the extension of the reduced threshold for the medical expense deduction,
• the increased limitation for certain charitable contributions,
• the elimination of miscellaneous itemized deductions,
• the increase and other modifications to the child tax credit,
• the increase in the estate and generation skipping tax exemption,
• the increase in the alternative minimum tax (AMT) exemption for individuals,
• the limitation on excess business losses, and
• the creation of the Sec. 199A pass-through deduction for qualified business income.

Family Savings Act

The second bill, the Family Savings Act of 2018, provides for changes to retirement and education accounts and creates a new tax-deferred savings account. Specifically, this proposed law would:

• Establish “Universal Savings Accounts,” described as a “flexible savings tool that families can use any time that’s right for them,”
• Expand Section 529 plans,
• Allow penalty-free, but not tax-free, withdrawals from retirement plans for individuals in the case of a birth of a child or adoption,
• Provide rules for multiple employer plans and pooled employer plans that would “allow small businesses to join together to create a 401(k) plan more affordably,”
• Streamline retirement plan administration and election rules,
• Repeal the maximum age for traditional IRA contributions, and
• Exempt individuals with certain account balances from required minimum distribution rules.

American Innovation Act

The third bill, called the American Innovation Act of 2018, provides two new provisions to encourage small business formation. If certain qualifications are met, this bill would:

• Increase the amount of combined start-up and organization costs that a new business can deduct to $20,000 in the year incurred, and
• Allow for the preservation of a start-up’s net operating losses and tax credits after changes in ownerships.

No matter what happens from here, it’s important to be informed of any potential tax law changes. We can answer your questions about how current tax law and any proposed legislation may affect your individual or business tax planning. Contact a member of your DGC Engagement Team or Stephen E. Minson, CPA, MST at 781-937-5120 / sminson@dgccpa.com, Erica Nadeau, CPA, MST at 781-937-5311 / enadeau@dgccpa.com, or Matthew Iannetti, CPA at 781-937-5370 / miannetti@dgccpa.com.