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Tax reform

What clients need to know about the tax reform bill

ByDaniel Hood
November 3, 2017 3:16 PM

Many advisors are pouring over the details of the House Republicans’ plans to revamp the tax code to see how it might affect clients. To help determine the potential impact on clients, click to see some of the main features of the bill.

U.S. President Donald Trump, center, speaks while holding up "Simple, Fair, 'Postcard' Tax Filing" cards as U.S. House Speaker Paul Ryan, a Republican from Wisconsin, left, and Representative Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee, react during a meeting in the Cabinet Room of the White House in Washington, D.C., U.S., on Thursday, Nov. 2, 2017. The House tax bill released Thursday preserves the carried interest tax break despite Trump and GOP leaders' promise to do away with loopholes for the wealthy.
U.S. President Donald Trump, center, speaks while holding up "Simple, Fair, 'Postcard' Tax Filing" cards as U.S. House Speaker Paul Ryan, a Republican from Wisconsin, left, and Representative Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee, react during a meeting in the Cabinet Room of the White House in Washington, D.C., U.S., on Thursday, Nov. 2, 2017. The House tax bill released Thursday preserves the carried interest tax break despite Trump and GOP leaders' promise to do away with loopholes for the wealthy. Photographer: Olivier Douliery/Bloomberg
Olivier Douliery/Bloomberg

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Many advisors are pouring over the details of the House Republicans’ plans to revamp the tax code to see how it might affect clients. To help determine the potential impact on clients, click to see some of the main features of the bill.
Tax forms
Tax forms
Michael Nagle/Bloomberg

New brackets for individuals

The legislation finally specifies four new tax brackets, and their associated income levels:
* 12% for households making from $24,000 to $90,000 a year;
* 25% for households making from $90,000 to $260,000 a year;
* 35% for households making from $260,000 to $1 million a year; and,
* 39.6% for households making more than $1 million a year.

Households making less than $24,000 won’t owe any income tax.
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JohnKwan - Fotolia

Raising the standard deduction

The standard deduction would rise from $6,350 to $12,000 for individuals, and from $12,700 to $24,000 for married couples.
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House with money and tax paper – us schedule A form
Karen Roach/Karen Roach - Fotolia

Mortgage interest deduction

This popular deduction would be lowered to allow taxpayers to deduct up to $500,000 of mortgage debt for newly purchased homes, down from the current max of $1 million.
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Caution Sign - Tax Refund Ahead
Jim Vallee/Jim Vallee - Fotolia

State and local tax deductions

The ability to write off state and local property taxes—the subject of some controversy because it particularly affects several large, high-tax states like New York and California—has been kept, but would be capped at $10,000. The deduction for income and sales taxes, however, would be repealed.
Parents Giving Children Piggyback Ride In Garden

A new credit for families

The bill includes a new Family Credit of $300 for each parent and non-child dependent, and would expand the Child Tax Credit from $1,000 to $1,600.
A close up of the capital building with an American flag
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Repeal of the AMT

The bill would repeal the Alternative Minimum Tax entirely.
RIP inscription
RIP. Rest in peace. Traditional inscription on the grave.
Vladimir Wrangel - stock.adobe.com

A lingering death for the Death Tax

The bill would immediately double the current estate tax exemption of $5.49 million for individuals, but it would repeal the tax after six years.
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Things that aren’t changing

The Republican leadership pointed out that several aspects of current tax law will not change; among the most important of those are:
* The Earned Income Tax Credit will remain in place.
* Popular retirement savings options like 401(k)s and IRAs will not be affected.
* The charitable deduction will remain in place
* For businesses, the R&D credit will still be available.
Daniel Hood
Editor-in-chief, Accounting Today
Tax reform Tax rates Tax deductions Tax planning Tax credits Finance, investment and tax-related legislation Client communications Retirement income Retirement planning Retirement readiness
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