Ten Huge Take-Aways from the Tax Cuts and Jobs Act of 2017
PITTSBURGH, Nov. 6, 2017 /PRNewswire-iReach/ -- The House Ways and Means Committee released their detailed recommendations for tax reform last week. They have called it the Tax Cuts and Jobs Act of 2017, and it is very important potential legislation. However, Pittsburgh CPA and Attorney James Lange thinks there are more than a few problems that may stand in the way of the bill as written. Republican Senators John McCain, Bob Corker, Jeff Flake, Lisa Murkowski, and most likely the majority of the Democratic Congress… to name a few.
However, Lange believes it is incredibly important that Americans understand the main provisions of the 400+ page bill so that they can begin to assess its impact on their families.
Until we know more, here are Jim Lange's 9 most important take-aways from the current bill:
1. This doesn't appear to be an overall tax-cut for the middle class, as promised. What we see in this bill is a tax cut for some, and a tax hike for others. As usual, it all depends on how much you make, how you earn your living, where you live, the mortgage on your home, your property taxes, student loans, etc. The Tax Policy Center commented that the bill wasn't really tax reform but rather it was a complicated tax cut. We have compared differences for hypothetical clients and the results were somewhat different than we expected. In one case, the elimination of the alternative minimum tax was helpful, but the disallowance of state and local income taxes netted out to a tax increase.
2. The bill reduces the number of tax brackets from seven to four. Currently the brackets are 10-15-20-28-33-35-39.6%. Under the new provisions there will be a zero bracket (in the form of an enhanced standard deduction according to the bill), and from there, the brackets will be 12-25-35-36.9%. Additionally, the bill would eliminate the alternative minimum tax (AMT), a second tax calculation for people earning about $130,000 which reduces the impact of many tax breaks.
3. The bill doubles the current standard deduction, giving $12,000 to single filers, $24,000 for married filers filing jointly, and $18,000 for heads of household.
4. Before you get too excited about a larger deduction, they've decided to repeal the personal exemption—currently $4,050 per person—and the deductions for state and local taxes. So, it isn't as much of a break as you think it is.
5. No more recharacterization of Roth IRAs. The ability to recharacterize, or basically undo, the Roth conversion adds enormous flexibility to retirement planning. This will mean that the days of do-it-yourself Roth IRA conversion calculations will be highly risky. Having a professional you can trust and who has the experience to get it right will become incredibly important.
6. Taxpayers with a net worth of $10 million or more (and their children) have a reason to cheer as the plan almost doubles the current federal estate tax exemption from $5,490,000 to $10,000,000 per individual, with spouses exempt from any limits. And after 2023, the estate tax will be repealed all together.
7. Reducing the corporate tax rate from 35 to 20 percent, Speaker Paul Ryan argues, will create more jobs and drive up wages. But critics say it is not a given that companies will pass their savings on to workers rather than shareholders. And that new rate comes with a much more involved and complicated filing process. Navigating your business tax return, especially for pass through entities like Subchapter S corporations, gets a lot more difficult!
8. The Act is silent on what we call the "Death of the Stretch IRA." We feel that there will be legislation killing the tax-deferral benefits of inherited IRAs for non-spousal beneficiaries. Even though this provision is not specified in the current version of the bill, it is very possible that they are holding it in reserve for future negotiations pertaining to reducing the deficit. Killing the ability to stretch IRAs and retirement plans for generations is one to offset the decreased revenue.
9. Even the Republican's admit that this bill will increase the deficit by $1.5 trillion dollars over the next ten years, and that is a huge issue for critics on both sides of the aisle.
Jim's advice to most taxpayers in light of these changes? Don't overreact! "Do your regular year-end tax planning, just be a bit more conservative with regard to Roth IRA conversions, because of the potential inability to recharacterize. And work with a knowledgeable professional to help you navigate whatever provisions do make it into law."
James Lange, CPA/Attorney, is the President of Lange Financial Group, LLC. He has been in business in Pittsburgh, Pennsylvania for more than 35 years. Lange and his team help IRA and retirement plan owners "get the most out of what they've got" by using cutting-edge strategies to address the financial concerns and estate planning needs of their clients. Learn more at http://www.paytaxeslater.com.
Media Contact: Amanda Cassady-Schweinsberg, Lange Accounting Group, LLC, 412-521-2732, [email protected]
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