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.
