You may have seen some information in the news about the draft tax reform legislation that was released recently – both by the House and by the Senates. These proposed bills have many differences. Here is a simplified breakdown of the main differences between the two.
Individual Tax Rates
Four tax rates on individuals: 12%, 25%, 35%, and 39.6%
Seven tax rates on individuals: 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%
$12,200 standard deduction for individual taxpayers $24,400 for married couples filing jointly Single filers with at least one qualifying child would get an $18,300 standard deduction.
$12,000 standard deduction for individual taxpayers $18,000 standard deduction for head-of-household filers $24,000 standard deduction for married couples. It would also preserve the additional standard deduction for elderly and blind taxpayers.
Child Tax Credit
State and Local Tax Deduction
Allows a deduction for state and local real property taxes, up to $10,000.
Eliminates the deduction for state and local taxes entirely.
Corporate Tax Rate
Reduce corporate tax rate to 20%
Reduce corporate tax rate to 20%, but delay the lower rate until 2019
Home Mortgage Interest Deduction
Would cut the deduction threshold to $500,000
Would keep the current threshold of $1,000,000
25% rate for pass-through companies but would only make 30% of their revenue eligible for that rate. Would tax the other 70 percent as wages under the individual tax rate. Would result in a blended rate for many small businesses between 35-38%.
17.4% deduction for pass-through businesses (would reduce the effective tax rate for small businesses in the top tax rate to slightly more than 30%)
Differences between the Senate bill and the House bill will need to be resolved before legislation can be enacted. For more information about the upcoming tax reform and how it may impact you or your business, contact us today!