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US Tax Reform

What made it into the Tax Reform 2.0 bills?

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

On Sept. 10, the House Ways and Means Committee released three bills that comprise “Tax Reform 2.0.” This article takes a look at what made it into these bills.

H.R. 6760, the “Protecting Family and Small Business Tax Cuts Act of 2018”

H.R. 6757, the “Family Savings Act of 2018”

H.R. 6756, the “American Innovation Act of 2018”

The “Protecting Family and Small Business Tax Cuts Act of 2018” would make the following provisions from the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017) permanent:

  • Deduction for qualified business income
  • Deduction for qualified business income
  • Limitation on losses for taxpayers other than corporations
  • Increase in standard deduction
  • Increase in and modification of child tax credit
  • Increased limitation for certain charitable contributions
  • Increased contributions to ABLE accounts
  • Rollovers to ABLE programs from 529 programs
  • Treatment of certain individuals performing services in the Sinai Peninsula of Egypt
  • Extension of reduction in threshold for medical expense deduction
  • Treatment of student loans discharged on account of death or disability
  • Repeal of deduction for personal exemptions
  • Limitation on deduction for State and local, etc. taxes (i.e., the SALT deduction)
  • Limitation on deduction for qualified residence interest
  • Modification of deduction for personal casualty losses
  • Termination of miscellaneous itemized deductions
  • Repeal of overall limitation on itemized deductions
  • Termination of exclusion for qualified bicycle commuting reimbursement
  • Qualified moving expense reimbursement exclusion limited to members of Armed Forces
  • Deduction for moving expenses limited to members of Armed Forces
  • Limitation on wagering losses
  • Increase in estate and gift tax exemption
  • Increased alternative minimum tax exemption for individuals

The “Family Savings Act of 2018” would:

  • Provide rules for multiple employer plans and pooled employer plans that would “allo[w] small businesses to join together to create a 401(k) plan more affordably”
  • Provide rules relating to election of safe harbor 401(k) status
  • Treat certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes
  • Repeal the maximum age for traditional IRA contributions
  • Prohibit qualified employer plans from making loans through credit cards and other similar arrangements
  • Provide for portability of lifetime income investments
  • Clarify treatment of custodial accounts on termination of section 403(b) plans
  • Clarify retirement income account rules relating to church-controlled organizations
  • Exempt individuals with certain account balances from required minimum distribution (RMD) rules
  • Clarify treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees
  • Provide elective deferrals by members of the Ready Reserve of a reserve component of the Armed Forces
  • Allow treatment of a plan adopted by the filing due date for year as in effect as of close of year
  • Modify nondiscrimination rules to protect older, longer service participants
  • “Study” appropriate PBGC premiums
  • Establish “Universal Savings Accounts,” described as a “flexible savings tool that families can use any time that’s right for them”
  • Expand section 529 plans
  • Allow penalty-free withdrawals from retirement plans for individuals in case of birth of child or adoptions

The “American Innovation Act of 2018” would:

  • Simplify and expand deductions for start-up and organizational expenditures under Code Sec. 195
  • Preserve start-up net operating losses (NOLs) and tax credits after ownership change

Timing and prospects.  As reported by Reuters, experts say House Republican leaders could have trouble mustering the 216 votes needed to pass the measure, given the prospect of widening the federal budget deficit already increased by a round of tax cuts made by the TCJA in December. And some Republicans from Democratic-leaning states are concerned about the inclusion in H.R. 6760 of the SALT deduction limitation, disliked by many constituents of higher-tax states.

While Ways and Means Committee Chairman Kevin Brady (R-TX) had originally planned a committee-level vote on the bills this week, with a House vote by the end of the month, it now appears possible that that the votes will be delayed on account of Hurricane Florence and other pressing governmental matters. Brady indicated that the full House would likely vote on the bills sometime next month.

If successful in the House, the legislation would not likely be taken up in the Senate soon, though experts believe the provisions on retirement savings could find bipartisan support eventually.

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