Breaking Tax News

On May 4, 2017 (my birthday…just thought I’d mention that) the House passed a modified version of the American Health Care Act (AHCA), however it is still pending approval by the Senate.  There are many uncertainties surrounding the bill’s impact since it has not been scored by the Congressional Budget Office, but Forbes summarized it as “a huge tax cut for the rich…”

Naturally a bill with the words ‘health care’ have many health care provisions in it – For example, if you have a pre-existing condition, you could be denied insurance coverage. However, this blog focuses on the potential tax implications.

15 Percent Corporate Tax

The proposed plan includes a cut to the corporate tax rate from 35 to 15 percent. This change will be most beneficial to large C-Corporations. Small business owners (e.g. S-Corp, LLC’s, and Sole Proprietor’s) will not see a difference. Hmmm…we may start to see CPAs and Attorneys recommending companies be registered a C-Corps…

Income Tax Brackets

The plan also proposes a cut to the number of tax brackets from seven to three. The proposed tax brackets will top at 35 percent, which will be a 4.6 percent reduction from the current 39.6 percent rate. The other two tax brackets are proposed to be 25 and 10 percent, respectively. The income ranges for the three brackets have not yet been released.

Tax Deduction Elimination

With the exception of mortgage interest and charitable contribution deductions, all deductions are proposed to be eliminated.  This includes student loan interest, HSA deductions, property taxes, tax preparation and legal fees, alimony paid, etc. This may also include medical deductions, although there has been mention that it may continue to be deductible with a threshold of 7.5%. It is still unclear if credits or deductions related to child and dependent care will also be eliminated.

Elimination of Personal and Dependent Exemptions

The proposed plan eliminates the exemptions for the taxpayer(s) and their dependents which is currently $4050 per person.

The GOP’s proposal to offset elimination in deductions and exemptions is to increase the standard deduction to $18,000 ($24,000, for married, filing jointly).

Elimination of Estate Tax & AMT

Lastly, the proposed plan includes the removal of both the estate tax and alternative minimum tax (AMT).  Estate taxes only apply to about 1 percent of the American population – those with assets valued at $5,490,000 or more at time of death. The alternative minimum tax applies to high income earners. Accordingly, most taxpayers will not be affected by this change.

Keep in mind the proposed AHCA still needs to be approved by the Senate. With that said, the proposed changes and their implementation dates can still be modified. Stay tuned for updates.

 

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Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.