The House Republicans recently introduced legislation that, bundled together, is being referred to as Tax Reform 2.0. Expanding on the Tax Cuts and Jobs Act (TCJA), it’s composed of three main bills intended to address some of most criticized portions of the TCJA.
H.R. 6760, Protecting Family and Small Business Tax Cuts Act of 2018
Currently, the TCJA tax cuts for individuals and small businesses expire in 2025, but this bill would make them permanent. The bill would also extend the lower 7.5 percent deduction floor for medical expenses through 2020; currently, this provision expires after 2018. Additionally, the bill attempts to clarify the increased child tax credit by making it explicit that a taxpayer identification number is needed to claim any non-child dependent. The estimated cost of these tax law changes is approximately $631 billion over 10 years.
H.R. 6757, Family Savings Act of 2018
This bill aims to help families start saving earlier and save more by expanding options. For example, one of the new savings vehicles the bill is set to create is a universal savings account allowing up to $2,500 in after-tax contributions per year, with tax-free withdrawals that can be made at any time for any reason. 529 plans also would be modified, expanding the definition of qualifying expenses and allowing up to $10,000 in distributions to be used for repayment of qualified education loans. The estimated cost of these tax law changes is approximately $21 billion over 10 years.
H.R. 6756, American Innovation Act of 2018
H.R. 6756 aims to help new businesses by expanding the current start-up and organizational costs deductions. Currently, start-up and organizational costs each qualify for a $5,000 deduction; this bill would allow a combined deduction of up to $20,000 for both.
Under the law as written currently, net operating loss carry-forwards, net operating losses, general business credit carry-forwards, and general business credits are eliminated or limited if there is an ownership change. H.R. 6756 would allow new businesses that have a change in ownership to claim these tax breaks the same as if no ownership change occurred.
The estimated cost of these tax law changes is approximately $5.4 billion over 10 years.
While the House Republicans believe they are being responsive to their constituents with these bills, the total cost for all three over the next 10 years exceeds $657 billion. With a federal deficit growing increasingly fast, it’s not clear how the Senate will react to the three bills that have already passed in the House.
Contact a Blackman & Sloop tax advisor for guidance on your situation.