The current leaders of the House of Representatives are proposing some major tax cuts that could, if passed, affect both corporate and individual taxes.

The goal is to simultaneously grow the economy by making more jobs possible and letting workers keep more of their paychecks, while also making taxation fairer for everyone.

However, it isn’t going to be easy to get this bill in under budget. It would siphon trillions from the federal government over time. This flies in the face of the current Administration’s budget, which allows only a $1.5 trillion reduction in revenue. In order to balance things out, lawmakers are taking aim at some old tax loopholes that benefited special interest groups, but the law may still be hard to pass.

What Won’t Be Affected

You don’t have to worry about losing your deduction for the interest on your mortgage or charitable donations. Be aware that future purchases over $500,000 will lose the deduction, while right now the trigger amount is $1 million.

What Will Be Affected

This is a long list and many of the items on it have the potential to be seen as beneficial or harmful, depending on your perspective. A few of the more notable changes include:

  • The optional standard deduction, used by many people in order to avoid itemizing their deductions, would nearly double.
  • The current 7 tax brackets would be reduced to 4.
  • Corporate taxes would drop to 20 percent from the current 35 percent.
  • There would be no change to the pre-tax contributions to your 401(k).
  • Estate taxes would be much easier to handle. They’d only kick in if the estate was worth $11.2 million or more (which is about double the current trigger amount) but would also be fully repealed by the year 2024.

If the bill is approved, and the President is pushing hard for it, that last item alone should send just about everyone with a substantial estate back to their attorneys for a review of their tax exemptions and a discussion on how they may want to revise existing wills.

For more specific advice, talk to your attorney today. For some, it might be wise to prepare documents ahead of time that anticipate the estate tax changes. That way, they just need to be signed into place without any further action from you.

Source: WBFO, “Republicans Propose Big Tax Cuts, But Target Popular Deductions,” Scott Horsley, Nov. 02, 2017