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Senate Tax Plan – As Revised House vs Senate Plan Compared
11/30/17

Senate Tax Plan Points – will lead to heated tax debate in 2017-2018

• House plan already passed! Quite an Accomplishment for GOP.
• How does Senate Tax Bill Differ from the House Tax Bill?
• Key Points of Senate Bill:
• Individual tax cuts and changes expire in 2025
• Senate bill removes ACA (Obamacare) mandate to have health insurance
• Reduced top individual rate to 38.5% (from current 39.6%)- House plan keep the rate

Senate vs. House Tax Plan – Key Differences

Child Tax Credit

• Increases to $2,000 from current $1,000 per child
• IRS Free File Program – codified and made permanent
• Aggressive treatment for Attorney Fees and Whistleblower Awards (above the AGI line)
• Partnerships Interests for Personal Services – 3 year holding period introduced to qualify for Capital Gain treatment

Senate Plan – How it Affects Business

Corporations:

• No deduction for dividends paid
• Must report dividends paid during the year and 2.5 months that follow
• Current 70% dividends-received deduction decreased to 50% – big deal for large c-corporations with substantial liquid reserves invested in dividend paying assets;
• Current 80% dividends-received deduction decreased to 65%

Business Tax Change – NOL Limited

• Net Operation Losses (NOL) – limited to 80% of taxable income
• NOL carried forward – no limitations, but
• No NOL Carryback!
• NOL rules kick in after 2022

Business Tax Changes – R&D Expenditures

• Changes to Research & Development (R&D) Expenses
• Must be capitalized and amortized over 5 years
• 15 years for amortization for overseas R&D
• Changes to Orphan Drug Credit:
• Reduced from 50% to 27.5%
• More reporting requirements
• Meals provided by employer – no longer deductible after 2025;

Tax Bill Affects Exempt Organizations

• May have dramatic effect for ALL tax exempt entities (aka non-profits)
• Proposes 20% Excise Tax on executive compensation – if exceeds $1m
• Tax owed by employee if in the top 5 highest paid
• Excise tax applied to excess “parachute” payments:
• To the extent the payments exceed the 5-years average pay times 3

Senate vs. House Tax Plan Compared

• Standard Deduction:
• Current: $6,350 Single/$12,700 Married
• House: Single $24,000/$24,000 Married
• Senate: SAME
• State and Local Tax Deduction (SALT)
• Current: Sales and property OR income taxes deductible
• House: Repeal SALT, limit property tax deduction to $10k
• Not good news for high tax states
• Senate: Repeal SALT

Senate vs. House Tax Plan – Pass Troughs

• Current: Pass Through Income – taxed at individual tax rates
• House Plan: max rate capped at 25% – special rules;
• Senate Plan:    Deduction for 17.4% of pass through income.

Senate vs. House Tax Plan Compared: Corporate Tax Rules

• Current: federal rate 35%
• House: reduced to 20% permanently
• Senate: reduced to 20% effective in 2019

Senate vs. House Plan – Compared: Business Expenses

• Current tax law: multiple, complex regulations for business deductions
• House: new equipment expensed over five years
• Senate: same, plus reduced depreciation rules for real property

Senate vs. House Plan – Compared: Child Tax

• Current: $1k per child; eliminated if income exceeds $110k
• House: $1600 per child, $300 for other dependents; no credit if income over $230k for married couples
• Senate: $2,000 credit per child, $500 for older dependents, eliminated over $500k for married taxpayers

Senate vs. House Plan – Compared: Repatriated Profits Tax

• New ‘animal’ – no current equivalent tax on overseas profits
• House: 14% and 7% tax on liquid and tangible assets respectively
• Senate: 10% and 7% tax rates on liquid and tangible assets respectively

Senate vs. House Plan – Compared: House vs. Senate Tax Plan – Estate Tax

• Current Estate Tax: 40% tax on estates over $5.49m!
• House plan: double the exclusion to $10.98m
• Repealed after 2024
• Senate Plan: the same but no repeal later

House vs. Senate Tax Plan – International Tax Outline

• Current rules: worldwide income is taxed, with tax credits for any foreign tax paid;
• House plan: territorial tax on domestic income, 10% tax on international income, 20% excise tax on certain foreign subsidiary income;
• Senate tax plan: territorial tax on domestic income, 10% tax on certain low tax intangible income, 12.5% tax on certain foreign intangible income;

Copyright – O’Brien Panchuk, LLP

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