John R. Bullis: Possible new tax law for individuals
The House of Representatives recently passed and sent to the Senate a proposal to change the income tax laws for individuals. Changes for businesses is a topic for a different article.
It would change to three tax brackets of zero-12 percent; 25 percent and 33 percent, instead of the current seven brackets and some special rules.
It would eliminate the Itemized Deductions on Schedule A, except for home mortgage interest (with some limits) and charitable deductions. That is offset by increasing the standard deductions to $12,000 for single taxpayers and $24,000 for joint returns. It is expected many more taxpayers will not do Itemized Deductions, since the standard deductions will be increased so much. The choice of either the increased standard deduction or to do itemized home mortgage interest and charitable deductions will still be available.
Capital gains, dividends and interest income would get a 50 percent exclusion. That means the rate of those items would be 6 percent for folks in the 12 percent bracket. It would be 12.5 percent for those in the 25 percent bracket and 16.5 percent for those in the 33 percent bracket. The inclusion of interest income in this provision would be new.
The alternative minimum tax on form 6251 would be repealed. That would save a lot of work and would be welcome. The National Taxpayer Advocate, Nina Olson, reported to Congress back in 2013 the alternative minimum tax is unnecessarily complicated and many fill out the form only to find they owe little or no alternative minimum tax after all.
The estate tax (death tax) for form 706 would be repealed. There are only about 2,500 of those returns filed each year now and the amount of tax is very small compared to the income tax.
The child tax credit would be increased to $1,500 with the first $1,000 a refundable credit and $500 would also be allowed for non-child dependents. The marriage penalty would be eliminated so married couples could earn up to $150,000 before their child tax credits begin phasing out.
A change in retirement savings accounts is expected. The goal is to consolidate the various choices available now to provide effective and efficient incentives for savings and investment.
Sole owner businesses and pass through entities (S corporations, partnerships) business income would have a maximum tax rate of 25 percent on that income.
The main goal is to have most taxpayers file a simple “post card” return.
Did you hear? “In the end, everything is simple,” by Jean Gebser.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.