What Exactly Is Tax Reform 2.0



What Exactly Is Tax Reform 2.0?



Last week the House Ways and Means Committee passed three separate bills that will be the cornerstone of what is being referred to as Tax Reform 2.0, here is what you need to know.

Many provisions of the TCJA currently are scheduled to expire after 2025. The bills focus on making permanent certain provisions of the Tax Cuts and Jobs Act (TCJA) that affect individuals, families, and small businesses. Here’s a brief overview of each:

PROTECTING FAMILY AND SMALL BUSINESS TAX CUTS ACT

Will make the following individual and business-focused provisions permanent:
For Individuals
•    Increase in the standard deduction,
•    Increase in and modification of the child tax credit,
•    Increased limitation for certain charitable contributions,
•    Increased contributions to Achieving a Better Life Experience (ABLE) accounts,
•    Rollovers to ABLE accounts from 529 plan accounts,
•    Extension of the reduction in threshold for the medical expense deduction,
•    Treatment of student loans discharged because of death or disability,
•    Repeal of the deduction for personal exemptions,
•    Limitation on the deduction for state and local taxes (the SALT deduction),
•    Limitation on the deduction for qualified residence interest,
•    Modification of the deduction for personal casualty losses,
•    Termination of miscellaneous itemized deductions,
•    Repeal of the overall limitation on itemized deductions,
•    Qualified moving expense reimbursement exclusion limited to armed forces,
•    Deduction for moving expenses limited to members of the armed forces,
•    Limitation on wagering losses,
•    Increase in the unified gift and estate tax exemption, and
•    Increased alternative minimum tax exemption for individuals.

For Businesses
•    Deduction for qualified business income, and
•    Limitation on losses for taxpayers other than corporations.

FAMILY SAVINGS ACT

Will provide for changes to retirement and education accounts, and create a new tax-deferred savings account. Specifically, this proposed law would:
•    Establish Universal Savings Accounts, a flexible savings tool families can use any time
•    Expand Section 529 plans,
•    Allow penalty-free withdrawals from retirement plans in the case of a birth or adoption,
•    Provide rules for employer plans allowing small businesses to join in creating a 401(k) plan more affordably,
•    Provide rules relating to the election of safe harbor 401(k) plan status,
•    Treat certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes,
•    Repeal the maximum age for traditional IRA contributions,
•    Prohibit qualified employer plans from making loans through credit cards and other similar arrangements,
•    Provide for portability of lifetime income investments,
•    Explain the treatment of custodial accounts on termination of Section 403(b) plans,
•    Clarify retirement income account rules relating to church-controlled organizations,
•    Exempt individuals with certain account balances from required minimum distribution rules, and
•    Clarify the treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees.

AMERICAN INNOVATION ACT
The third bill would allow new businesses to deduct up to $20,000 in start-up expenses in the year they’re incurred so long as they meet certain qualifications. Specifically, this bill would:
•    Simplify and expand deductions for start-up and organizational expenditures, and
•    Preserve start-up net operating losses and tax credits after an ownership change.

What happens next?
A full House vote on the bills is expected to take place at the end of September or in October. If the bills pass the full House, it’s not expected that the legislation will be taken up in the Senate before the midterm November elections, though experts believe the provisions on retirement savings could eventually find bipartisan support. Your Fuoco group professionals will keep you abreast of any tax law changes or proposed legislation that may affect your individual or business tax planning. Contact Lou Fuoco, CPA, with any tax questions, call toll free 855-534-2727.

 

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