This past Friday, the final version of the Republican tax bill was released. Comprised of both the recent House and Senate tax bills, this plan combines both versions into an overhaul tax reform bill.
While individuals can expect many changes in the tax bill, which includes an increase to the child tax credit to $2,000, a limitation on state and local tax deductions to $10,000, and the mortgage interest debt deduction capped at homes with a debt of $750,000 are just a few. Businesses can expect many changes as well.
Republican tax bill to cut corporate taxes
Small business owners organized as a corporation can expect to see a considerable rate reduction. Although both the previous House and Senate bill proposed a tax reduction from 35% to 20%, the Republicans final tax bill offers a tax reduction rate of 21%.
Pass-through entities to obtain tax deduction
Many small business owners organized as “pass-through” entities for tax purposes. These are entities whose earnings are taxed on their personal income tax. Thus the name “pass through.” Businesses such as sole proprietors, partnerships, and other business types are “pass-through” entities.
The Republicans tax bill will allow these businesses to deduct up to 20% of business income from their profits up to $315,000 (for joint filers). Also, the tax bill will further limit the overall tax rate of “pass-through” entities to 29.6% and will limit the tax deduction to high-income earners.
This will result in tax savings for small business owners. While corporations may fare better under this plan, this version is set to help those whose profits are less than 315,000 or less for joint taxpayers and $157,500 if single, per year.
Elimination of healthcare mandate
During 2010, the Affordable Care Act, also known as Obamacare, became the law of the land. With the passing of this bill, it also mandated that taxpayers purchase healthcare insurance or face a penalty. This bill proposes to do away with the individual mandate, thus eliminating the requirement to buy healthcare coverage beginning in 2019.
The next steps
The Republicans are hopeful that the bill will pass before year-end. The bill is set for a final vote in the upcoming week, with hopes that the president can sign the bill into law this year.