Sep 28 Tax Alert: Framework Revealed for American Tax Reform

The Trump Administration released the “Unified Framework” for tax reform on September 27, 2017, which serves as a template for the tax-writing committees to develop tax legislation. The key initiatives of this framework are tax relief for middle-class families and businesses, a simpler and fairer tax filing system, and bringing jobs back to America from overseas.

The highlights of the tax reform framework include the following:

FOR BUSINESSES:

• Limits the maximum tax rate to 25% for small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations
• Reduces the corporate tax rate to 20%
• Eliminates the corporate alternative minimum tax (AMT)
• Allows for the immediate write-off of costs for new investments in depreciable assets other than structures that are made after September 27, 2017 for at least five years
• Partially limits deduction for net interest expense incurred by C corporations
• Eliminates Sec. 199, domestic production activities deduction (DPAD)
• Preserves business credits in areas of research and development (R&D) and low-income housing
• Transforms current worldwide tax model to a territorial system by providing a 100% exemption for dividends from 10% or more owned foreign subsidiaries. Foreign earnings that have accumulated overseas under the old system will be treated as repatriated giving rise to one time repatriation tax
• Accumulated foreign earnings held in illiquid assets will be taxed at a lower rate than cash. Payment of the tax liability could be spread out over several years

FOR INDIVIDUALS:

• Condenses seven income tax brackets to three:  12%, 25% and 35%
• An additional top rate may apply to the highest-income taxpayers
• Doubles the standard deduction to $24,000 for married taxpayers who file jointly and $12,000 for single filers
• Repeals the personal exemptions for dependents and significantly increases the Child Tax Credit.  The first $1,000 of the credit will be refundable as under current law
• Provides a non-refundable credit of $500 for non-child dependents
• Repeals all itemized deductions except home mortgage interest and charitable contributions
• Repeals estate tax and the generation-skipping transfer tax
• Eliminates the individual alternative minimum tax (AMT)

Next, the tax-writing committees will work to turn this framework into legislation with the expectation to be passed by the end of 2017. Sax will keep you advised of new developments as they happen. For any questions or further information, please contact a Sax advisor at (973) 472-6250.