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Mike DiSabatino CPA

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A Quick Look at the Proposed Tax Bill


I just started to look at the Tax Bill proposed by the House.  There are surprisingly many issues that have not been discussed in any articles or newscasts that I am aware of... Here are some of my initial take-a-ways :

  • Tax Preparation Fees deduction will be eliminated.
  • Alimony will not be deductible or taxable for divorce agreements signed after 12/31/2017.
  • The discussion of the "Maximum Tax Rate on Business Income of Individuals" is 2 pages long. I think it will take an 8-hour seminar to understand !!! 
  • "Simplification and Reform of Family and Individual Tax Credits" is 2 1/2 pages.
  •  "Simplification and Reform of Education Incentives" (3 1/2 pages). 
  1.  The American Opportunity Tax Credit (AOTC), Hope Scholarship Credit (HSC), & Lifetime Learning Credit (LLC) will be consolidated into an enhanced AOTC, which will add provisions for a 5th year of post-secondary education at 1/2 the rate as the 1st four years, with up to $ 500 of such credit to be refundable.
  2. Consolidation of Education Savings Rules which would prohibit future contributions into Coverdell Education Savings accounts, but would allow tax-free rollovers from Coverdells into 529 plans. In addition, Elementary and high school expenses of up to $ 10,000 per year would be qualified expenses for section 529 plans, as well as for apprenticeship programs. ( I guess they never heard of middle schools.)  The provision provides that an unborn child ("in utero") may be treated as a designated beneficiary or an individual under section 529 plans.
  3. Reforms to Discharge of certain Student Loan Indebtedness -- If discharged because of death or total disability of the student, it will be excluded from taxable income.
  4. Repeal of the page 1 "above the line" Deduction for Interest on Student Education Loans, and Qualified Tuition and Related Expenses. Repeal of the Exclusions for Interest on U S Savings Bonds used to pay for Qualified Education Expenses, Qualified Tuition Reduction Programs provided by Educational Institutions, and Employer-Provided Education Assistance Programs.
"Simplification and Reform of Deductions for Individuals" ( 7 pages) :
  1. Repeal of overall limitation on itemized deductions ("Pease").
  2. Mortgage interest on purchases after 11/2/2017 will be limited to the that on $ 500,000, and only on the primary residence. Interest on Home Equity Indebtedness incurred after 11/2/2017 would not be deductible.
  3. Repeal of Deduction for State and Local Income or Sales Taxes, unless "incurred in carrying on a trade or business, or producing income". Deductions will be allowed up to $ 10,000 in property tax. ( NOTE -- If PA follows thru on repealing property taxes, and  replacing them with local income taxes, then homeowners will get -0- deductions.
  4. Repeal of Deduction for Personal Casualty Losses, except for those covered by special disaster relief legislation concerning specified natural disasters.
  5. Charitable Contribution regulations would be changed. The 50% of AGI limitation would be increased to 60%, and would retain the 5-year carryover period of excess donations. Repeal of the College Athletic Event Seating Rights Deduction. Charitable Mileage Rate will be adjusted for inflation. 
  6. Repeal of Deduction for Tax Preparation Expenses for Individuals.
  7. Repeal of Medical Expense Deduction.
  8. Repeal of Alimony Deduction (1040, page 1), and Alimony Income will not be taxable either. (I think this has been done probably because the IRS failed to track the Income side, but the legislation says it is because of the tax savings for couples in the structuring of payments from higher earning taxpayers to lower earning spouses.)
  9. Repeal of the Deduction for Moving Expenses.
  10. Repeal of Deduction and Exclusions for Contributions to Archer Medical Savings Accounts (MSA), and Employer Contributions to an Archer MSA's would not be excluded from from income. Existing MSA's would be allowed to continue to be rolled over on a tax-free basis to an Health Savings Account (HSA).
  11. Denial of Deduction for Employee Business Expenses, except for certain expenses of reserve components of the U S Military. ( The reason is the burden on recordkeeping, and "administrative and enforcement challenges for the IRS".) 
"Simplification and Reform of Exclusions and Taxable Compensation" ( 3 pages) :
  1. Limitation to $ 50,000 for the Exclusion  for Housing for the Convenience of the Employer for employees of Educational Institutions, and would phase out for highly compensated individuals at a rate of 50% of the AGI earned by the individual above the statutory threshold of being highly compensated.
  2. Change in the Exclusion of Gain from Sale of a Personal Residence to 5 out of 8 years (as it was prior to 1978), and only once every 5 years. The Exclusion would be phased out $ for $ for AGI exceeding $ 500,000/$ 250,000. (They state that "flippers" would not be rewarded for their activity with "tax-exempt" income.)
  3. Repeal the Exclusion for Employee Achievement Awards, and they would become taxable compensation. 
  4. Repeal of Exclusion of Dependent Care Assistance Programs from Employee Income.
  5. Repeal of Exclusion for Qualified Moving Expense Reimbursements, so they would become taxable.
  6. Repeal of Exclusion for Adoption Assistance Programs, so they would become taxable income.
"Simplification and Reform of Savings, Pensions, and Retirement :(3 pages) :
  1. Repeal of Special Rule Permitting  Recharacterization of ROTH IRA Contributions
  2. Reduction of Minimum Age for Allowable In-Service Distributions to age 59 1/2.
  3. Modification of the Rules Governing Hardship Distributions to allow to make contributions to plans.
  4. Modification of the Rules to allow Hardship Withdrawals from Cash or Deferred Arrangements from account earnings and employer contributions, in addition to employee contributions.
  5. Extended Rollover Period for the Rollover of Plan Loan Offset Amounts in Certain Cases to allow terminated employees or ones who voluntarily separate from service to have until the due date for filing their tax return (rather than 60 days) to contribute the loan balance to an IRA in order to avoid the loan being taxed as a distribution.
  6. Modification of Non-Discrimination Rules for Older, Longer Service Participants by expanding the cross-testing between an employer's defined benefit and deferred contribution plans as allowed for purposes of the non-discrimination rules. 
"Estate and Generation-Skipping Transfer Taxes" (1 page) :
  1. Increase in Estate Exclusion to $ 10 million (indexed for inflation), and repealed after 2023, while maintaining a beneficiary's stepped-up basis, and Repeal of Transfer Taxes especially for small businesses. The gift tax exclusion would be $ 10 million (annually $ 14,000 as of 2017, probably increased to $ 15,000 as already scheduled), both indexed for inflation.
"Alternative Minimum Tax ("AMT") Repeal" (1+ page) :
  1. Repeal the AMT, and allows 50% of any AMT credit carryforwards to be used in 2019, 2020, and 2021, and then 100% of the remaining balance beginning in 2022. ( This was recommended by the Joint Commission on Taxation in 2001 !!!! ) 
More info to come....

As always, feel free to pass this Tip along to friends, and reach out if you need help with your personal tax and finance situation.

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Michael DiSabatino
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