Changes to the tax reform act have already begun


The simplification of the Tax Code that many hoped would outcome from tax reform seems to be much less and fewer probably as negotiations start contained in the Beltway to find out its closing form.

A day after the discharge of the Tax Cuts and Jobs Act on November 2, Ways and Means Committee Chairman Kevin Brady launched the Chairman’s Mark, “Amendment in the Nature of a Substitute to H.R. 1.” The markup course of started at midday on November 6, and is predicted to be full on November 9. The mark reduces the projected value of the invoice from $1.49 billion to $1.41 billion with numerous technical adjustments and two substantive alterations – an inflation-indexing change and a limitation on treaty advantages for entities managed by a international dad or mum.

“The major substantive change is that it would utilize a reduced cost-of-living adjustment from the very beginning and get away from the old CPI,” mentioned David de Jong, CPA, a accomplice on the Rockville, Md., regulation agency of Stein Sperling Bennett De Jong Driscoll PC. “This should cause indexing to be a lesser percentage going forward than has been the case in prior years.”

“House members will have to contend with potential differences within the bills, and will have to deal with the Senate bill as well,” noticed De Jong.

The Senate is predicted to launch its invoice as quickly because the House completes its markup.

Rep. Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee

Rep. Kevin Brady, a Republican from Texas and chairman of the House Ways and Means Committee


“It’s touch and go right now,” mentioned De Jong. “There’s a lot of opposition that has emerged to the elimination of some of the tax breaks. Most significant are the home mortgage interest deduction curtailment and the property tax curtailment. There’s also opposition from the real estate industry to other provisions, including the restriction on upper-income people using the exclusion on disposition of a principal residence, and lobbyists for older people are unhappy with the elimination of the deduction for medical expenses.”

The lack of the deduction for medical bills is especially onerous for the aged, in accordance with De Jong. “It will be a hard hit to those in care facilities who are running high-deductible medical expenses,” he mentioned. “Most of these pay no tax because their medical expenses exceed their income. The effect of the legislation will be to give no consideration for their cost of care.”

“The handling of the maximum tax rate of 25 percent on flow-through income is extremely complicated, and is very fact-intense,” he famous. “I see this provision leading to a lot of issues under examination in the years to come. It significantly complicates the tax law where individuals of both parties are talking simplicity. It’s a very difficult provision both from a legal and a factual perspective.”

“There are a number of provisions in the bill that simplify the existing code, but this would affect a large number of individuals and could be the most complex addition to the code since the pbadive activity rules were added 30 years ago,” he continued.

Uncertainty and alternative forward

“We don’t know where the Senate is on this, and there are still members of the House that may not support it,” mentioned Todd Simmens, accomplice at BDO and former employees member of the Joint Committee on Taxation. “The caveat is that we don’t know what the final bill signed by the president would look like. A lot of things can and will happen.”

That uncertainty – and the complexity of most of the adjustments — make it pretty essential that tax professionals get in contact with their shoppers.

For occasion, the invoice reduces the company tax price to 20 p.c however proposes a price of 25 p.c for pbad-throughs. “Would a C corporation that invests in a partnership be subject to the 20 percent or 25 percent rate?” Simmens requested. “There are a host of details and planning opportunities that preparers should be bringing to the attention of their clients.”

Dean Zerbe, former Senior Counsel to the Senate Finance Committee and present alliantgroup National Managing Director, agreed. “Before the end of the year they should definitely be talking to their clients,” he suggested. “If there’s a chance to defer revenue, that might be a transparent alternative. But most of will probably be efficient for the upcoming tax 12 months, so the essential factor for preparers is informing your shoppers of what’s on the market and what’s doable to allow them to make decisions about any transactions that they could wish to do earlier than year-end, or delay till subsequent 12 months.”

The invoice nonetheless has to get by way of the House, the place adjustments might be made, after which by way of the Senate, the place extra adjustments might be made, noticed Roger Harris, president of Padgett Business Services. “If something like this is close to becoming law, clearly there are discussions we have to have with our clients,” he mentioned. “The transition rules are key. For example, the bill calls for an expanded use of cash accounting for small businesses, including not having to track inventory when calculating the cost of goods sold. How do they transition what is already on the books down to zero?”

For preparers involved concerning the promise to allow 90 p.c of taxpayers to file their taxes on a return the dimensions of a postcard, Dustin Stamper, managing director at Grant Thornton’s Washington National Tax Office, had some rebaduring phrases. “That’s just a sound bite,” he mentioned. “The kind of taxpayers that go to accounting firms will still very much need accountants after the legislation pbades. Although there is some simplification going on, there are also a lot of complex new provisions.”

Roger Russell

Roger Russell

Roger Russell is senior editor for tax with Accounting Today, and a tax lawyer and a authorized and accounting journalist.

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