Tax updates – Fall 2017 The following is a summary of a few important tax developments that have occurred in the past three months.
President Trump and key lawmakers reveal tax reform plan. The document provides some detail but leaves many specifics to be worked out by the tax-writing committees.
Plan provisions affecting individuals would:
• increase the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers;
• eliminate the personal exemption and the additional standard deductions for older/blind taxpayers;
• reduce the number of tax brackets from seven to three: 12%, 25%, and 35%;
• increase the child tax credit;
• repeal the individual alternative minimum tax;
• largely eliminate itemized deductions, but retain the home mortgage interest and charitable contribution deductions; and
• repeal both the estate tax and the generation-skipping transfer tax.
Plan provisions affecting businesses would:
• provide a maximum 25% tax rate for “small” and family-owned businesses conducted as sole proprietorships, partnerships and S corporations;
• reduce the corporate tax rate to 20% (down from the current top rate of 35%);
• provide full expensing for five years;
• partially limit the deduction for net interest expense incurred by C corporations;
• repeal most deductions and credits, but retain the research and low-income housing credits;
• modernize special tax rules that apply to certain industries and sectors;
• provide a 100% exemption for dividends from foreign subsidiaries; and
• to protect the U.S. tax base, tax the foreign profits of U.S. multinational corporations at a reduced rate and on a global basis.
Disaster tax relief legislation and administrative relief. On September 29, President Trump signed into law the “Disaster Tax Relief and Airport and Airway Extension Act of 2017” (P.L. 115-63). The Act provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria. Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of using current or prior year’s income for purposes of claiming the earned income and child tax credits. Businesses that qualify for relief may claim a new “employee retention tax credit” of 40% of up to $6,000 of “qualified wages” paid by employers affected by Hurricanes Harvey, Irma, and Maria (for a maximum credit of $2,400 per employee). In addition to the new law, IRS has granted specific administrative hurricane relief, for example, extending various deadlines, encouraging leave-based donation programs for hurricane victims, and allowing retirement plans to make hardship distributions.
Simplified per-diem increase for post-Sept. 30, 2017 travel. An employer may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses (M&E). If the rate paid doesn’t exceed the IRS-approved maximums, and the employee provides simplified substantiation, the reimbursement isn’t subject to income- or payroll-tax withholding and isn’t reported on the employee’s Form W-2. Instead of using actual per-diems, employers may use a simplified “high-low” per-diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental U.S. (CONUS), and another per-diem rate for all other areas within CONUS. The IRS released the “high-low” simplified per-diem rates for post-Sept. 30, 2017, travel. Under the optional high-low method for post-Sept. 30, 2017 travel, the high-cost-area per diem is $284 (up from $282), consisting of $216 for lodging and $68 for M&IE. The per-diem for all other localities is $191 (up from $189), consisting of $134 for lodging and $57 for M&IE.
Please contact us for more information about any of these developments.