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GOP tax bill offers major changes for individuals and businesses

House Republican leaders released their highly anticipated Tax Cuts and Jobs Act, detailing sweeping changes to the corporate and individual tax systems. Here are the policy highlights:

Individuals:

  • Individual tax rates collapse into four brackets at 12 percent, 25 percent, 35 percent and 39.6 percent; the highest tax bracket will remain at 39.6 percent, with the income threshold at $1 million for married couples, $500,000 for individuals.
  • Standard deduction raised to $24,000 for married couples, $12,000 for individuals
  • Child Tax Credit increased from $1,000 to $1,600; also provides a $300 credit for parents and non-child dependents as part of a consolidated family tax credit
  • Individuals who itemize deductions can continue to write-off state and local property taxes (up to $10,000), home mortgage interest (limited to indebtedness up to $500,000 on new mortgages) and charitable contributions. Most other itemized deductions eliminated including state and local income taxes and medical expenses.
  • Higher education benefits simplified and restructured
  • Estate tax exemption doubled to $10 million for tax years beginning after 2017. Beginning after 2023, the estate tax would be repealed entirely while maintaining stepped-up basis for property passed to beneficiaries.
  • Alternative minimum tax (AMT) repealed

Businesses:

  • Corporate tax rate reduced to flat 20 percent
  • Pass-through business income tax rate reduced to 25 percent subject to certain restrictions and limitations
  • Immediate write-off of costs of qualified equipment placed in service
  • Research and development tax credit preserved while eliminating many of the other special deductions and credits
  • Interest expense deduction limited, however, exceptions apply for small businesses
  • International territorial tax system adopted with a participation exemption on dividends received from foreign subsidiaries
  • One-time deemed repatriation tax on accumulated foreign earnings;12 percent rate on earnings held in cash or cash equivalents, 5 percent on all others

Additional information and details will be provided as we review the bill further.

To view the full Tax Cuts and Jobs Act, click here. You can also review a summary by clicking here.

If you have any questions or would like assistance navigating these potential changes, please contact your Rehmann advisor.

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