HIGHLIGHTS OF PROPOSED FEDERAL TAX REFORM
Federal tax reform is moving quickly at the U.S. Capitol with the goal of sending a final bill to President Trump by the end of the year. Both the House and Senate are proposing comprehensive tax reform and relief to strengthen the global competitiveness of America’s businesses, simplify the tax code for families and provide relief to taxpayers. The House Ways & Means committee provided final markup of the bill, HR 1, last week and it was sent to the floor for the initial vote. Orrin Hatch, chairman of the U.S. Senate Committee on Finance, rolled out the Tax Cuts and Jobs Act last week, with committee markup planned by Thanksgiving.
We encourage you to review the tax plans and to weigh in with your congressional delegation. The bills provide substantial tax relief for both individuals and businesses.
Among the key provisions:
Corporate tax: Rate reduced to 20% in both the House and Senate. Senate delays enactment until 2019.
Pass-through tax reductions for entities reporting business income on personal income taxes: Senate enacts 17.4% deduction for certain business income. House caps top rate at 25% for certain business income and lowers bottom rate to 9% for smaller businesses.
Income tax: House reduces the existing seven rates to four and adjusts brackets to provide tax relief. Senate keeps seven rates, but adjusts rates and brackets and lowers top rate to 38.5%.
Territorial tax: Both the House and Senate go to a territorial tax system (it taxes income earned domestically versus the current worldwide tax system) and include anti-base erosion provisions to prevent tax avoidance.
Deductions: Many itemized deductions are eliminated in both proposals. House retains the state and local tax deduction (SALT) from federal taxes, but caps it at $10,000 for property taxes. Senate eliminates the SALT deduction.
Alternative minimum tax: The AMT is eliminated in the House and Senate proposals.
For additional detail, go to:
Tax Foundation, Side-by-side highlights of House and Senate tax bills.
Please check out the U.S. Chamber website for additional information on tax reform and how to weigh in on this opportunity to reform the U.S. tax code.
Minnesota businesses and taxpayers are forecasted to have significant tax relief under both versions, which means more dollars available to reinvest in your companies, your employees and your households. However, the impact will vary greatly depending on the circumstances of each taxpayer and on your business model. It is important to look at the full package of reform to determine the overall effect on your business. These proposals, if enacted, also provide the opportunity and the need to modify state policy to create a more competitive tax system.