24 THE QUEENS COURIER • NOVEMBER 23, 2017 FOR BREAKING NEWS VISIT WWW.QNS.COM
H & R Block arrives in L.I.C.
15-485
HRBLOCK.COM
WE'RE HERE ALL YEAR -
AT TAX TIME, OR ANY TIME.
WE UNDERSTAND YOU DON'T THINK
ABOUT TAXES ALL YEAR - BUT WE DO.
OBTP# B13696 ©2015 HRB Tax Group, Inc.
At H&R Block, we're available year-round to
discuss the tax implications of your life-changing
events. From wedding bells, babies and new
homes to medical issues and natural disasters,
we're here to put our expertise to work for you.
AVAILABLE AT PARTICIPATING OFFICES.
41-18 CRESCENT ST, LONG ISLAND CITY, NY 11101
718-707-0295
47-46 VERNON BLVD, SECOND FLOOR, LONG ISLAND CITY, NY 11101
718-707-0955
Hernan Barona, E.A
New Tax Reform
BY JOHN SAVIGNANO, CPA
On November 16, the U.S. House of Representatives
passed its version of the Tax Cuts and Jobs Act. That same
day, the Senate Finance Committee approved its version. Both
are based on the Trump administration’s plan presented on
September 27, 2017.
The Senate plan cuts the corporate tax rate from 35 percent
to 20 percent, but not until 2019. The House plan does so
in 2018. Both plans cut income tax rates, double the standard
deduction, and eliminate personal exemptions.
On November 14, 2017, the Senate added a repeal of the
Obamacare tax on those who don’t get health insurance. The
CBO estimates 13 million people would drop health insurance.
The federal government would save $338 billion by not
having to pay their health insurance subsidies. But health care
costs will rise because fewer people will get preventive care.
Trump asked Congress to use that savings to lower the top
income tax rate to 35 percent.
On November 15, 2017, the Senate added a measure to
allow oil drilling in the Arctic National Wildlife Refuge. It
would add $1.1 billion in revenues over 10 years. But drilling
isn’t cost effective until oil prices reach $70 a barrel.
Here’s a summary of how both tax plans change income
taxes, deductions for child and elder care, and business taxes.
The Trump administration believes the final bill will look
more like the Senate plan.
Income Tax Brackets
The Senate plan keeps the current seven income tax brackets
but lowers some tax rates.
These rates will revert to the current rate in 2025.
The House plan reduces the number of tax brackets to four
and lowers rates.
Both tax plans eliminate itemized deductions except for
those for charitable contributions, mortgage interest, property
taxes, and retirement savings. Current mortgage-holders
aren’t affected by either plan. The House plan limits the
deduction up to $500,000 for new mortgages. That would
affect just 6 percent of mortgages, mostly in large cities. The
Senate plan allows the deduction to remain up to $1 million
but eliminates it for home equity loans.
The House plan eliminates the deduction for medical
expenses. Currently, people can deduct medical expenses that
are 10 percent or more of income. It was used by 8.8 million
people in 2015. The Senate plan keeps that deduction.
Both plans eliminate the deduction for state and local
taxes. That would hurt 44 million people, primarily residents
in high-tax states like California and New York. It would add
$1.3 trillion to federal revenues.
The House plan allows taxpayers to deduct state property
tax deductions up to $10,000. The Senate plan allows businesses
to deduct state and local taxes.
Both eliminate deductions for interest payments on school
loans, moving expenses, theft or loss of valuable, and electric
vehicles. Both plans double the standard deduction for
everyone. A single filer’s deduction increases from $6,350 to
$12,000. The deduction for Married and Joint Filers increases
from $12,700 to $24,000.
Both plans eliminate personal exemptions. The exemption
currently allows taxpayers to subtract $4,050 from income for
each person claimed on the tax return. Families with many
children would pay higher taxes despite the increased standard
deductions.
For example, a married couple with two children making
$56,000 a year would pay $68 a year more.
Both plans double the estate tax exemption. Current tax
law for 2018 exempts the first $5.6 million for singles and
$11.2 million for couples. The House plan repeals the estate
tax and the generation-skipping transfer tax as of January
1, 2024. That would help the top 1 percent of the population
who pay it. That’s 4,918 tax returns, but they contribute $17
billion in taxes.
Both plans eliminate the Alternative Minimum Tax. That
helps those who make enough to be subject to it. In 2017, the
AMT could affect those with incomes above $54,300 (single)
or $84,500 (married filing jointly).
Child and Elder Care Deductions
The Senate plan increases the Child Tax Credit from $1,000
to $2,000. It also increases the income level from $110,000 to
$1 million. The House plan raises the Credit to $1,600. Both
plans preserve the adoption tax credit. The Senate plan allows
parents to set aside money for their unborn child in a tax-advantaged
account.
The House plan eliminates the marriage penalty as it relates
to the Child Tax Credit. Under the current tax system, two
single parents receive the full credit up to a combined income
of $150,000. But the credit shrinks for a married couple after
they earn $110,000. Research shows that subsidizing child
care encourages people to work. That boosts income and economic
growth.
The House plan allows a $300 credit for each non-child
dependent that sunsets in five years. Trump’s 2016 plan gave a
permanent $5,000 deduction for elder care.
Business Taxes
Both plans lower the maximum corporate tax rate from 35
percent to 20 percent. The Senate plan delays the change until
2019. It delayed the tax cut to save $100 billion in revenue loss.
The United States has one of the highest corporate tax rates
in the world. But that doesn’t hurt large corporations. Most
of them don’t pay more than 15 percent. That’s because they
can afford tax attorneys who help them avoid paying more.
Both plans lower the maximum small business tax rate to
25 percent. The House plan reduces the rate to 9 percent on
the first $75,000 in income on businesses that make $150,000
or less. That phases in until 2022. That includes sole proprietorships,
partnerships, and S corporations. Many of those are
real estate companies, hedge funds, and private equity funds.
The Senate plan’s reduced rate doesn’t apply to labor-intensive
firms like lawyers and financial services that make more
than $75,000 a year. It also eliminates the deductions for supplies,
home office costs, and legal fees. But it adds a 17.4 percent
standard deduction.
Both plans allow businesses to expense the cost of depreciable
assets instead of writing them off over the years. It does
not apply to structures. This feature expires in five years. The
write-off would encourage more investment.
Under the House plan, C corporations lose the ability
to deduct interest expense. That makes it more expensive
for financial firms to borrow money to lend and invest.
Companies would be less likely to issue bonds and buy
back their stock. That could cause stock prices to fall. But
the repeal would generate $1.5 trillion in revenue to pay for
other tax breaks.
On November 6, the House increased taxes on carried
interest profits. It’s taxed at 23.8 percent instead of the top 39.6
percent income rate. Firms must hold assets for a year to qualify
for the lower rate. The House plan extends that requirement
to three years. That might hurt hedge funds that tend to
trade frequently. It would not affect private equity funds that
hold onto assets for around five years. Trump campaigned on
making them pay their fair share. The change would raise $1.2
billion in revenue.
Both plans advocate a «territorial» tax system. It doesn’t
tax income that businesses earn in other countries. But it
does impose a 10 percent tax on high-profit foreign subsidiaries.
Businesses can repatriate cash stockpiles for a one-time
low tax rate. That may encourage companies to put that cash
to work. The Senate plan’s tax rate is 10 percent on cash and
5 percent on illiquid assets. The House plan charges 7 percent
and 14 percent, respectively. Trump’s Five-Part tax plan
charged 10 percent.
The goal is to encourage companies to repatriate $2.6 trillion
in foreign cash. They’ve hoarded it to avoid paying taxes.
But the Congressional Research Service found that a 2004
tax holiday provided little boost to the economy. Companies
distributed repatriated cash to shareholders, not employees.
Next Steps
The Senate plan must fulfill two requirements to pass the
Senate with a 51-vote majority. First, it can’t add more than
$1.5 trillion to the debt in the first 10 years. Second, the Byrd
rule prohibits it from adding anything to the debt after the
first 10 years. The current version already violates that. If the
Senate bill doesn’t pass those two rules, it requires a 60-vote
majority to pass. Then the plan is dead. Democrats won’t support
a bill that benefits the rich more than the poor.
The Senate bill is already in trouble. Senator Ron Johnson,
R-Wis., opposes the bill because it doesn’t do enough for small
businesses. Senator Susan Collins, R-Maine, is concerned that
eliminating the mandate to buy health insurance will raise
premiums for everyone else.
The Senate will vote on its plan after Thanksgiving. That
gives House and Senate leaders a month to reconcile them in a
conference committee. The Senate cannot approve the House
bill as its currently stands because it violates the Byrd Rule.
The House doesn’t want to approve the Senate’s elimination of
the deduction for state and local taxes.
If the conference committee reconciles the two versions,
Congress votes on the final bill. Leaders want to send it to the
president before Christmas. That’s a very ambitious deadline.
That process would last until January 2018.
The National Association of Home Builders and the
National Association of Realtors oppose increasing the personal
deduction and reducing the mortgage deduction. As
more taxpayers take a standard deduction, fewer would take
advantage of the mortgage interest deduction. That would
lower housing prices. This could be a good time to do that,
since many people are concerned that the real estate market is
forming a bubble that could lead to another collapse.
AARP opposes the elimination of the medical expense
deduction. That hurts seniors the most, since they are more
likely to have chronic illnesses or be in nursing homes.
John Savignano is a partner with Savignano
Accountants & Advisors located at 47-46
Vernon Blvd., Second Floor, in Long Island
City. If you have any questions or require
additional information, please call John at
718-707-0955.
TAX TIPS