Tax reform bill signed into law

Written on Dec 21, 2017

UPDATED DEC. 22: President Trump on Dec. 22 signed the Tax Cuts and Jobs Act into law, giving the U.S. its first fundamental tax reform since 1986.

Both houses of Congress this week passed the bill titled “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” After a Senate and House conference committee reviewed the preexisting bills from both houses, lawmakers made several changes and consolidations to create the final bill.

Among the provisions of the bill, which the Joint Committee on Taxation estimates will save taxpayers $1.4-trillion over 10 years, are: lowering of the corporate tax rate to 21 percent, seven individual tax brackets (10%, 12%, 22%, 24%, 32%, 35% and 37%) and an increase in the standard deduction to $12,000 for single filers and $24,000 for married couples, and repeal of personal exemptions and miscellaneous itemized deductions.

Most of the legislation’s tax cuts for individuals would become effective in January 2018 and expire in 2025 (and revert to the rules prior to this legislation) to comply with Senate budget rules. However, the reduction in the corporate rate would become effective in January 2018 and be permanent.

Once signed, the challenges for implementation will include the production of new IRS forms and guidance to accommodate the bill’s many changes. The CPA profession’s advocacy led to the inclusion of several beneficial provisions in the final tax package. Specifically, Congress expanded the number of taxpayers who may use the cash method of accounting without further restricting its use. Lawmakers also decided to adopt many AICPA supported provisions, including:

  • Retained the business interest expense deduction for small businesses (under $25 million).
  • Preserved the current tax treatment of nonqualified deferred compensation.
  • Simplified the kiddie tax.
  • Simplified the inventory rules for small businesses.
  • Expanded the exception for small businesses from the uniform capitalization rules.
  • Removed computer or peripheral equipment from the definition of listed property.
  • Provided consideration of an inflation index.
  • Allowed nonresident aliens as qualifying beneficiaries of an electing small business trust.
  • Repealed the PEASE phase-out of itemized deductions.
  • Repealed the technical terminations rule for partnerships.
  • Repealed the corporate Alternative Minimum Tax.

To learn more about the CPA profession’s views on tax reform, visit the AICPA’s Tax Reform Resource Center.

Related: Get the latest tax reform CPE

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