An update on Congress’ tax reform effort
As I have said before, getting Congress to work together to come up with real tax reform is about as easy as herding cats! Believe it or not, the “cats” (fat cats in Congress) are actually starting to line up and head in the same direction. Amazing!
So, what are we looking at right now?
Eliminate the Estate Tax, but keep the Gift Tax. There would still be an asset step-up in basis at death for the beneficiaries in most cases. Heirs of large estates may have to use carryover basis for a portion of the assets they inherit.
Eliminate the Alternative Minimum Tax. Hooray! The most stupid tax designed to stick it to the rich, but ended up sticking it to the middle class, will finally be gone! It was one of the dumbest ideas involving tax Congress ever created.
A big change is to eliminate the deduction for State and Local Income and Property Tax. Currently, we taxpayers in Nevada are supplementing states like New York, California, New Jersey, and Illinois who have massively high income and property taxes, they then deduct and pay a smaller Federal Income Tax than the rest of us. This is clearly not fair and it needs to go. Expect a fight from the congressional representatives of those states.
For corporations, the new top tax rate will probably be 20 percent and for pass-through businesses (Schedule C, Partnerships, and Sub-S Corporations) it will be 25 percent. EXCEPT professionals (doctors, lawyers, engineers, and even accountants). Professionals will probably still pay tax on their business profits at the highest personal rates. There may also be a formula used to insert “reasonable owner compensation” into the mix for all pass-through businesses. Any amount computed to be profits going to “owner compensation” would still be taxed at the highest individual rates, the rest would be at the lower maximum business rate.
There will be three tax rates for individuals — 12 percent, 25 percent, and 35 percent. The Standard Deduction is expected to double. (Example: Rise to $24,000 for married couples, which is currently $12,000.) Also, increasing the child tax credit by as much as $500 a child.
If Congress can finish this by the end of 2017, expect it to become effective Jan 1, 2018. There’s a small possibility that they will make it effective starting in 2019, but unlikely.
Did you hear? Romans 13:7 says, “Pay to all what is owed to them: taxes to whom taxes are owed …”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. He’s on the web at BullisAndCo.com and also on Facebook.