There are some very good things in the bill, but some other things we hoped for got the axe in order to keep the bill below the threshold that would take it out of the reconciliation process and would require Democrat votes to pass.
Here are the things that did NOT make it into tax reform
- A simplified code: While certain filers may have an slightly easier return to file, for our clients those who are self-employed, have business and investment income, or worldwide business, the tax work only increased.
- FATCA Repeal/TTFI. This was disappointment for us. But the issue is not dead yet. The Foreign Account Tax Compliance Act and a switch to territorial taxation for individuals did not make it into the tax bill.
- NIIT Repeal: The ObamaCare mandate is gone but not the ObamaCare tax increases known as Net Investment Income Tax. The NIIT creates an additional 3.8% on certain filers. This still can make the top marginal tax rate of dividends and long-term gains taxable at a rate of 23.8%
- Lowered pass through rates. We saw "S-corp" "pass-through" rates between 20 and 25% being proposed. This did not happen. But what did happen is now a deduction for pass through is allowed. What this means is the top effective tax rate for certain pass through income comes out to around 29.6% — but there are a bunch of qualifiers. There are limitations to this deduction with regard to incoem and type of business. But it appears as if loopholes are left open. We will be paying a lot of attention to this, and using holding companies with a hybrid C-corp structure. Some of these loopholes left open, we believe were intentional done so.
- No repeal of AMT. The Alternative Minimum Tax was not repealed. Although it should be effecting less people now.
- No repeal of Death tax. The death tax was not repeal. But rather the lifetime exemptions were doubled.
Stay tuned as we examine more of the law, and again, keep an eye out for our Tax Cuts and Jobs Act of 2017 guide coming out soon!