The bill passed by the House is now before the Senate. It meets President Trump’s campaign promise to make provisions of the 2017 Tax Cut and Jobs Act or “TCJA” permanent. That law made substantial changes to tax rates, deductions and credits for individuals, corporations and other entities as well as including the qualified business income deduction or QBID. We provide an abbreviated summary of the new bill at the bottom.
However, the impact on the national debt from the reduced revenue due to the cuts has raised concerns with investors and led to downgrading the rating for Treasury bonds. One estimate has a ten-year cost of $3 trillion, which could explain why the bill raises the debt ceiling by $4 trillion.
Will this bill suffer the same fate as the Trump bill in 2017 to overturn the Affordable Care Act? That bill had passed the House only to be thrashed to death in the Senate. We will post updates when the Senate finishes with its version.
What is the Impact of New Tax Law?
We have been reviewing the impact of the new law and this is not simplification!
Here is one example: the increase in the deduction allowed for state and local tax or “SALT” to $40,000 could reduce taxes for many, if they can include more state and local taxes when they itemize. But, the impact is blunted because the standard deduction also increased (you take the larger of the two). Then the benefit of itemized deductions is reduced above a certain income level. The above-the-line charitable deduction also reduces the impact of itemizing. And increasing the SALT deduction could mean you owe the Alternative Minimum Tax or “AMT.” In other words, you have to run tax projections to determine the best action.
In previous posts, we have advised bunching of deductions into a single year so you can optimize itemizing. That planning may be both more important and tougher to do.
Many new provisions that initially sound good involve complex qualifications that could mean few taxpayers use them. For example, there are so many savings accounts to which this bill adds the Trump account and expands other provisions. On the other hand, access to health savings accounts or HSAs for seniors could provide a new resource for planning.
The expiration of electric vehicle credits and energy-efficient home credits may mean acting sooner on some purchases.
Conclusion
We have to see what the final law looks like to know how best to respond. If you want us to review the impact on your taxes, please let me know.
Related: Financial Crimes and Corporate Transparency – New Reporting