Tax Reform 2.0 is making its way through Congress. On September 13, the House Ways and Means Committee passed three separate bills that focus on making several provisions of the Tax Cuts and Jobs Act (TCJA) permanent. The provisions affect individuals, families, and small businesses. The bills also promote family and retirement savings and new business innovation. As an example, one proposal would allow new businesses to write off more of their initial start-up costs. Here is a brief overview of the three bills.
Protecting Family and Small Business Tax Cuts Act
Many provisions of the TCJA currently are scheduled to expire after 2025. The proposed Protecting Family and Small Business Tax Cuts Act of 2018 would make the following individual and business-focused provisions permanent:
- 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,
- Termination of the exclusion for qualified bicycle commuting reimbursement,
- Qualified moving expense reimbursement exclusion limited to members of the 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.
- Deduction for qualified business income, and
- Limitation on losses for taxpayers other than corporations.
Family Savings Act
The second bill, the Family Savings Act of 2018, provides for changes to retirement and education accounts and creates a new tax-deferred savings account. Specifically, this proposed law would:
- Establish “Universal Savings Accounts,” described as a “flexible savings tool that families can use any time that’s right for them,”
- Expand Section 529 plans,
- Allow penalty-free withdrawals from retirement plans for individuals in the case of a birth of a child or adoption,
- Provide rules for multiple employer plans and pooled employer plans that would “allow small businesses to join together to create a 401(k) plan more affordably,”
- Provide rules relating to the election of safe harbor 401(k) plan status,
- Treat certain taxable nontuition 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, called the American Innovation Act of 2018, is the briefest of the three, at only 15 pages. It would allow new businesses to deduct up to $20,000 in start-up expenses in the year they are 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.
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. A major sticking point is the estimated price tag of the legislation: $627 billion over the next decade, according to a recent analysis by the Joint Committee on Taxation.
Blue & Co. will continue to monitor the proposed legislation and report significant developments as they unfold. Should you have any questions on how TCJA or the proposed legislation affect your taxes, please contact your local Blue & Co., LLC tax representative.