Tax reform: What advisers need to know about the Senate bill

Some key differences from House bill include how mortgage deduction and estate taxes are treated

Nov 9, 2017 @ 4:00 pm

By Mark Schoeff Jr.

Republican members of the Senate Finance Committee released their tax-reform bill on Thursday. Here are the highlights for financial advisers along with a comparison to the House bill, an amended version of which was approved on Thursday by a party-line vote in the House Ways and Means Committee.

Tax rates

Senate: Expands the zero tax bracket and maintains a 10% bracket. The plan "targets tax relief to the middle class while maintaining the existing tax distribution, and a 38.5% bracket for high-income earners," the highlights state.

Here are the breakouts of the seven marginal tax rates under the Senate's bill: 10% (taxable income up to $9,525 for single filers); 12% (over $9,525); 22.5% (over $38,700); 25% (over $60,000); 32.5% (over $170,000); 35% (over $200,000); and 38.5% (over $500,000).

House: Reduces the number of marginal income-tax rates to four: 12% (starting at $12,000 of taxable income for single filers), 25% ($45,000), 35% ($200,000) and 39.6% ($500,000).

401 (k) plans

Senate: No changes to pre-tax limit for tax-deferrals for contributions to 401(k)s and individual retirement accounts.

House: Same

Pass-throughs

Senate: A taxpayer "generally may deduct 17.4% of domestic qualified business income" from a partnership, S corporation, or sole proprietorship," according to a detailed outline of the tax plan published by the Joint Committee on Taxation.

House: A portion of net income distributed from a pass-through business to an owner would be treated as business income and taxed at a 25% instead of the current individual rate. The amended bill approved by the House Ways and Means Committee on Thursday provides a lower tax rate for some small business owners. Tax rates could be as low as 9% for some income for an indivdual earning less than $75,000 through a pass-through business.

Estate tax

Senate: Doubles the current exemption of $5.49 million ($10.98 million for married couples). The federal estate tax, currently 40%, is levied at death.

House: Doubles exemption beginning in tax-year 2018 and repeals the tax beginning in 2024.

AMT

Senate: Repeals the alternative minimum tax.

House: Same

Mortgage deduction

Senate: Maintains the mortgage deduction for existing mortgages and for newly purchased homes up to $1 million.

House: Caps mortgage deduction at $500,000 for new homes.

Charitable deduction

Senate: Preserves deduction for charitable contributions

House: Same, with some minor changes

State and local tax deduction

Senate: Eliminates all state and local tax deductions.

House: Ends itemized deduction for state and local income and sales taxes, while allowing itemized deductions for up to $10,000 of property taxes.

Standard deduction

Senate: Doubles standard deduction from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.

House: Same

Corporate tax rate

Senate: Sets corporate tax rate at 20%, but wants to delay it until 2019

House: Same, but change would take effect in 2018.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Where in the U.S. are RIAs growing the fastest?

InvestmentNews' deputy editor Robert Hordt talks to senior columnist Jeff Benjamin about his report on how registered investment advisers are faring in different regions of the country.

Latest news & opinion

10 must-know facts about today's 401(k) plans

Here are the latest changes in 401(k) plans across areas such as investments, fees, contributions, investment advice and more.

Questions abound as Ohio National stops commission payments this week

Advisers are grappling with how to proceed, with their clients and their businesses, as the insurer's new annuity trail policy takes effect.

Top 10 RIAs in the South

These are the largest registered investment advisory firms in the Southern U.S., based on AUM.

Top 10 RIAs in the Midwest

These are the largest registered investment advisers in terms of AUM in the Midwestern U.S.

Top 10 RIAs in the Northeast

These are the largest registered investment advice firms in the Northeastern U.S., in terms of assets under management.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print