Tax Reform 2.0

The House passed three tax bills, known as Tax Reform 2.0, at the end of September. The legislation can now advance to the Senate, though the Senate is not expected to vote on the tax-reform legislation until after the mid-term elections.

The Protecting Family and Small Business Tax Cuts Act of 2018 would make the 2017 tax cuts for individuals and pass-through businesses permanent.  Currently, the tax cuts are set to expire at the end of 2025.

Changes that would be made permanent include:

• The marginal tax brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• The standard deduction, $12,000 for singles and $24,000 for married couples.
• The elimination of personal exemptions.
• The child tax credit of $2,000 per child.
• The deduction cap on state and local taxes of $10,000.
• The 20% tax deduction for small business owners.

The American Innovation Act of 2018 would make startup costs for new businesses less burdensome.  The Act will allow for higher deductions in a business’s first year, as well as exempting    start-up losses and credits from limitations on use.

The Family Savings Act of 2018 would make changes to retirement and education accounts, and create tax-advantaged Universal Savings Accounts.

Individuals with less than $50,000 in their retirement accounts, would no longer be required to take required minimum distributions (RMDs) starting at age 70.5. The Act would eliminate the age limit on contributions to a Traditional IRA. Currently, contributions past age 70.5 are not allowed. Early withdrawals from retirement accounts for the birth, or adoption, of a new child would be allowed penalty free.

Universal Savings Accounts could be established, and the funds could be used however a person sees fit.  Similar to Roth IRAs, the account would be funded with after-tax contributions.  Up to $2,500 per year could be contributed, and withdrawals would be tax-free.

Restrictions on small businesses to join multiple employer plans (MEPs) would be reduced.

529 education accounts would be further expanded to include the costs of home schooling, qualified education loan repayments, and expenses for registered apprenticeship programs.

Resources:

“H.R. 6756 — 115th Congress: American Innovation Act of 2018.” www.GovTrack.us. 2018. October 1, 2018 https://www.govtrack.us/congress/bills/115/hr6756

“H.R. 6757 — 115th Congress: Family Savings Act of 2018.” www.GovTrack.us. 2018. October 1, 2018 https://www.govtrack.us/congress/bills/115/hr6757

“H.R. 6760 — 115th Congress: Protecting Family and Small Business Tax Cuts Act of 2018.” www.GovTrack.us. 2018. October 1, 2018 https://www.govtrack.us/congress/bills/115/hr6760