How Will the New Tax Plan Affect You?
A few weeks ago, the House passed a federal tax overhaul plan and sent it over to the Senate for approval. At the same time, the Senate approved their own similar plan, which the House will now consider. It is unclear at this time which plan will eventually prevail, but it entirely likely that one of these proposals will indeed amend our current federal income tax system. So, what’s changing?
Businesses. Central to the House bill is the reduction of corporate taxation, in an attempt to spur growth of industry and jobs. That plan would reduce corporate taxes from the current 35 percent, to 20 percent beginning in 2018. The Senate bill includes that same tax cut, but would delay it by one year.
Individuals. One of the largest changes included in the House bill will reduce the number of tax brackets from seven down to only four. Many popular deductions could also be eliminated.
The House plan eliminates the popular deduction for state and local taxes. However, property taxes will still be deductible, up to $10,000. This might be of interest to those of you in the real estate industry, or to those whose property taxes total more than $10,000 per year.
Perhaps most importantly, the Senate bill would eliminate federal subsidies that help individuals cover the cost of health insurance premiums. This is an issue we will watch closely here in California, as the subsidies carry significant importance within our own public healthcare system (Covered California). The bill also would eliminate the Affordable Care Act penalty on those who do not have health insurance.
The House plan increases the child tax credit from the current $1,000, to $1,600 per child. Meanwhile the Senate bill would bump the credit to $2,000 per child.
The House bill does not lower the top marginal tax rate of 39.6 percent, while the Senate bill would reduce it slightly to 39.6 percent.
Estate Tax. The Senate plan partially repeals the estate tax, while the House plan does away with it entirely. This could be good news for those of you who are at risk of estate taxes someday, whether from an inheritance or your own estate. Of course, it’s still too soon to say whether either of these bills will pass in their entirety, and the bill won’t affect state taxes, so continue to plan for for this tax when you meet with our estate planning attorney.
While the bills are similar in many ways, there is no way to tell whether the House or Senate tax plans will become law. We will continue to watch this issue closely, and notify our business or individual clients of changes that will affect them.