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Major Tax Revision in 2017

Comparison of Current Law and Tax Reform Framework

With the consideration of health care legislation put aside, at least for the present, the primary focus in Washington is now on tax reform. This effort could result in the most consequential tax law changes since the Tax Reform Act of 1986.

On September 27, 2017, the Trump Administration, the House Ways and Means Committee and the Senate Finance Committee released a framework for tax reform – “Unified Framework For Fixing Our Broken Tax Code.” From this framework, legislation is to be developed by the tax writing committees of Congress.

We will monitor developments as the process moves forward in earnest and will continue to keep our clients and friends informed as circumstances warrant.

Corporate and International Tax Provisions

 

Current Law

Tax Reform Framework

Top Corporate Tax Rate

35%

20%

Top Passthrough Tax Rate

39.6%

25% on business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations

House and Senate committees to adopt measures to prevent recharacterization of personal income into business income

Carried Interest

Taxed as long-term capital gain

No specific proposal

Corporate Alternative Minimum Tax

Imposed on corporation to extent tentative minimum tax exceeds regular tax

Repeal

Depreciation

Cost recovery over period of years

Full expensing for the cost of new investments in depreciable assets other than structures made after September 27, 2017 for at least 5 years

Interest Expense

Generally deductible

Deduction for net interest expense incurred by C corporations partially limited

Committees to consider appropriate treatment of interest paid by non-corporate taxpayers

Net Operating Losses (NOLs)

Generally may be carried back two years and carried forward 20 years

No information

Research credit

Generally either 20% credit for qualifying research expenses in excess of base amount or 14% alternative simplified credit

Retain

Domestic Production Activities Deduction (IRC Sec. 199)

Up to 9% deduction for certain income attributable to domestic production activities

Repeal

Employer Provided Child Care

$150,000 maximum tax credit for on-site childcare

Portion of credit subject to recapture if child care facilities closed within first 10 years after placed in service

No information

Taxation of International Income

Worldwide with deferral

Territorial

100% exemption for dividends from foreign subsidiaries (in which U.S. parent owns at least 10% interest)

To prevent companies from shifting profits to “tax havens,” rules to protect U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations

Rules to be adopted to “level playing field” between U.S.- headquartered parent companies and foreign-headquartered parent companies

Repatriation

Repatriated foreign source income taxed at full corporate rate subject to foreign tax credit or deduction

Foreign earnings that have accumulated overseas under current system treated as repatriated

Accumulated foreign earnings held in illiquid assets taxed at a lower rate than foreign earnings held in cash or cash equivalents

Payment of tax liability spread over several years

Cross-border transactions

Silent

No information

Subpart F income

Subpart F rules limit deferral for certain foreign income

No information


Individual Tax Provisions

 

Current Law

Tax Reform Framework

Ordinary Income Tax Rates

7 brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%

12%, 25% and 35%

Additional top rate may apply

Use of more accurate measure of inflation for indexing tax brackets and other tax parameters

Capital Gains/Qualified Dividends

Short-term capital gains (held less than 1 year) taxed at ordinary income rates

Long-term capital gains (held 1 year or more) taxed at preferential rates, top rate of 20%

Dividends taxed as ordinary income; qualified dividends taxed at capital gains rates

No Information

Alternative Minimum Tax

Alternate tax calculation based on 26%/28% tax rate, payable if greater than regular tax calculation

Repeal

Net Investment Income Tax

3.8% above $200,000 adjusted gross income (single), above $250,000 (married filing jointly)

No Information

Medicare Surtax on Wages

0.9% --adjusted gross income greater than $200,000 (single), adjusted gross income greater than $250,000 (married filing jointly)

No Information

Personal Exemptions

$4,050; Personal exemption phase-out applies for taxpayers with adjusted gross income above certain amounts

Eliminate

Itemized Deductions

Phase-out applies to taxpayers with adjusted gross income above certain amounts

Eliminate most itemized deductions except home mortgage interest and charitable contributions

Standard Deduction

$6,300 (single and married filing separately)

$9,300 (head of household)

$12,600 (married filing jointly)

Additional standard deduction ($1,250) for elderly or blind

Standard deduction and personal exemption combined and increased to $12,000 (single) and $24,000 (married filing jointly)

Children and Families

Childcare tax credit

Repeal personal exemptions for dependents

Increase Child Tax Credit

First $1,000 of Child Tax Credit refundable as under current law

Increase income levels at which Child Tax Credit begins to phase out

Non-refundable credit of $500 for non-child dependents


Estate / Gift Tax Provisions

 

Current Law

Tax Reform Framework

Estate Tax

Exemption: $5,450,000, adjusted for inflation; top rate of 40%

Additional tax may apply to generation-skipping transfers

Repeal estate and generation-skipping transfer tax

Gift Tax

Lifetime exemption: $5,450,000, adjusted for inflation

Annual exclusion: $14,000 per donee, adjusted for inflation

No specific proposal


2017 Tax Reform Resource Page >

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