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GOP Tax Reform Plan Calls for Across-the-Board Rate Cuts and Territorial Tax System

Posted by Marty Williams, CPA on Jul 14, 2016 2:56:09 PM

iStock_95194421_LARGE-032587-edited.jpgJust in time to make a splash in advance of their national convention in Cleveland, Republicans in the U.S. House of Representatives released a 35-page tax reform report on June 24 that proposes fundamental changes in several significant areas. Among the most important changes are proposals to slash tax rates for corporations, pass-through businesses, and most individuals.

Additionally, the GOP report calls for migrating the country away from a worldwide international tax system toward adoption of a territorial system dividend-exemption system for taxing foreign-source income of U.S. multinationals.

Specific proposed provisions of the report include:

  • Providing full expensing for business costs – with no deduction for net business interest expense.
  • Migrating the country toward a cash-flow tax system by allowing 100% first-year expensing of investments in tangible personal property, intangible property, and real property other than land. Note that this move would be made without adopting a national sales tax or value-added tax.
  • Adjusting corporate tax rates. Specifically, the top U.S. statutory corporate income tax rate would be reduced to 20%. Currently, it is set at 35 percent.
  • Adjusting the pass-through business income tax system with a top rate of 25% for non-C corporation business entities, including limited liability companies, partnerships, S corporations and sole proprietorships.
  • Adjusting individual tax rates. The current top individual tax rate would be reduced from 39.6% to 33%. Additionally, the GOP proposal would replace the current seven individual tax brackets with three rates set at 12%, 25%, and 33%.
  • Repealing the corporate Alternative Minimum Tax (AMT), as well as the estate tax and generation-skipping transfer tax.
  • Retaining the research and experimentation tax credit and the last-in-first-out (LIFO) method of inventory accounting.
  • Reformatting the individual tax reform return for most individual taxpayers as a simplified 14-line “postcard” size document.
  • Consolidating the standard deduction ($12,600 in 2016 for joint filers and $6,300 for singles) and personal exemptions for a taxpayer and spouse ($4,050 per person in 2016) into an enhanced standard deduction of $24,000 for joint filers and $12,000 for singles (adjusted for inflation)
  • Consolidating the child tax credit and personal exemptions for dependents into an enhanced “child and dependent tax credit.”

This report, or “blueprint” as House Republicans have termed it, is the final piece of the “Better Way” agenda that was led by House Speaker Paul Ryan, R-Wis. and House and Ways Means Committee Chairman Kevin Brady (R-Texas). Many questions remain unanswered, and many details must still be worked out by the Ways and Means Committee, so it was not released as legislative language.

If you have questions about this report and how it will affect you or if you have other tax planning needs, contact Marty Williams, CPA at (334) 887-7022 or please feel free to leave a message below.

Topics: Tax Planning

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