Over the last six weeks, my colleagues have posted numerous insightful posts about the various tax bills’ impact on tax-advantaged bonds (see here, here and here). For our readers who have been entirely consumed by those provisions of the bill, I thought it would be helpful to highlight some of the other provisions of the joint House/Senate tax bill released on December 15. Thus, below is a very brief summary of some of the other noteworthy provisions in the 503 page joint tax bill.
Those receiving gifts in their stockings this holiday season:
- C Corporations – appear to be the biggest winners (and have received the equivalent of a brand new sports car with a bow on it in the driveway), receiving:
- a permanent reduction in the highest federal corporate tax rate from 35% to 21% beginning on January 1, 2018, and
- elimination of the corporate alternative minimum tax.
- Certain pass-through entities (partnerships, LLCs, and S corporations) – a 20% deduction of business income will be permitted for certain pass-through entities (i.e., generally those with higher capital costs, and not too much taxable income). In contrast, those in the service industry, such as lawyers and accountants, that have high taxable income are not so fortunate (at least under the joint tax bill). For service industry joint filers, the 20% deduction begins phasing out at $315,000 of taxable income, and completely phases out at $415,000 of taxable income.
- High-income individuals – a reduction of the highest federal individual income tax rate from 39.6% to 37% through 2025, and an increase in the threshold before the individual alternative minimum tax applies through 2025.
- Wealthy loved ones – the tax exemption before the estate tax kicks in will be increased from $11 million for joint filers to $22 million for joint filers through 2025.
- Middle/Working Class – the standard deduction will be roughly doubled through 2025 and the child tax credit will be increased to $2,000 per child through 2025.
- High-Risk-Taking Individuals (likely no tax attorneys in this group) – the penalty for not buying health insurance will cease (i.e., the “individual mandate” imposed by the Affordable Care Act is eliminated).
Those receiving coal in their stockings this holiday season (which may be an indirect way to boost the fossil fuel industry):
- All issuers and borrowers of tax-advantaged bonds – who will no longer be able to advance refund any of those bonds in the future.
- Well-endowed universities – a new 1.4% excise tax will be imposed on the net investment income of private colleges and universities that have endowment assets of more than $500,000 per student.
- Individuals living in high tax states – the current deductibility of any state and local taxes will be limited to $10,000 per year.
- Individuals purchasing new homes that have a mortgage in excess of $750,000 (for joint filers) – as the mortgage interest deduction will not be allowed with respect to the excess debt.
- Deficit hawks – as the proposed tax bill adds not quite $1.0 trillion to the national debt (per the estimate by the Joint Committee on Taxation).
- Tax associates – who will be tasked with reading and summarizing the 503 joint tax bill over the upcoming holidays.