Evaluate the Tax Cuts and Jobs Act (TCJA) of 2017("Tax Act"). This was the last major tax legislation passed by Congress.

1. Did the Tax Act increase or decrease the deficit by approximately how much?

2. Was the Tax Act based on supply-side economic theory?

3. Was the Tax Act a simplification of the Internal Revenue Tax code?

4. Did the Tax Act create jobs, and where? If not, why was it called the "..Jobs Act"?

5. For individuals, were the reduced limits on deductions like mortgage interest and State taxes fair?

6. One of the goals was to have corporations repatriate profits held overseas - did this happen?

7. What is your overall opinion of the Tax Act? Who were the big winners?

Tax Cuts and Jobs Act Highlights 37-Percent Top Individual Tax Rate 21-Percent Flat Corporate Tax Rate New Tax Regime for Pass-throughs Individual AMT Retained/Modified Federal Estate Tax Retained /Modified Corporate AMT Repealed More Generous Expensing b S S S, S R S International Provisions Individuals. Businesses.. 5 Energy. .6 Exempt Organizations. Irs AdMINISTIRAION . O IR TR AR S ot mnstomtessrsemps v rrnsmsnsssompssunenrmsasiess ) December 20, 2017 SPECIAL REPORT Congress Approves Sweeping Tax Overhaul The Tax Cuts and Jobs Act (H.R. 1) has been approved by Congress and is on its way to the White House. After a last-minute procedural glitch that required the Senate to vote first on the final bill, the most sweeping change to the U.S. tax code in decades cleared the Senate, 51 to 48, in the early morning hours of De- cember 20, followed by House approval, 224 to 201, later the same day. President Trump has signaled his support for this tax legislation and is expected to sign the bill into law when it reaches the White House. H.R. 1, as approved by Congress, impacts virtually every individual and business on a level not seen in over 30 years. As with any tax bill, however, there will be \"winners\" and \"losers\" This historic bill calls for lowering the individual and corporate tax rates, repealing countless tax credits and deductions, enhancing the child tax credit, boosting business expensing, and more. The bill also impacts the Affordable Care Act (mca), effectively repealing the individual shared responsibility requirement. 3\\\\ IMPACT. Many of the changes to the Internal Revenue Code in the final bill are temporary. This is true especially with respect to the provi- sions of the bill impacting individuals. This decision was made in order to keep the bill within budgetary parameters, but with no guarantees that a future Congress would extend them. INDIVIDUALS Tax Rates H.R. 1 carries temporary tax rates of 10, 12, 22, 24, 32, 35, and 37 percent after 2017. Under current law, individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. & IMPACT. The rate changes in the final bill expire after 2025. Q COMMENT. The IRS has announced that initial withholding guidance (Notice 1036) to reflect enactment of the Tax Cuts and Jobs Act, would be issued in January 2018, \"which would allow taxpayers to begin seeing the benefits of the change as early as February\" -\\\\\\ IMPACT. The bill includes income ranges for their respective brackets. 2 Tax Briefing-Tax Cuts and Jobs Act H.R. 1 Brackets households, and $6,500 for all other filers. The additional Rate Joint Return Individual Return standard deduction for the ELDERLY and the blind ($1,300 for 10%% SO - $19,050 50 - $9,525 married taxpayers, $1,600 for single taxpayers) is retained. 12% $19,050 - $77,400 $9,525 - $38,700 IMPACT. One goal of a higher standard deduc- 229% $77,400 - $165,000 $38,700 - $82,500 tion is to simplify tax filing through cutting, by more 24% $165,000-$315,000 $82,500 - $157,500 than half, those taxpayers who would otherwise do 32% $315,000 - $400,000 $157,500 - $200,000 better by itemizing deductions. Of course, that group 35% $400,000 - $600,000 $200,000 - $500,000 would realize less of a net tax benefit than those 37% Over $600,000 Over $500,000 taxpayers who do not now itemize. Supporters argue that, in addition to simplification, it effectively creates a IMPACT. Under the bill, income levels are more broadly applicable "zero tax bracket" for taxpay- indexed for inflation for a "chained CPI" instead of ers earning less than the standard deduction amount. CPI. Both the original House bill and the Senate bill called for a chained CPL In general, this change IMPACT. The doubling of the standard deduc- would result in a smaller annual rise in rate brackets, tion would effectively eliminate most individuals from which the Joint Committee of Taxation estimates, claiming itemized deductions other than higher- when combined with using the chained CPI for all income taxpayers. For example, for the vast majority other inflation-adjusted tax amount, would bring $128 of married taxpayers filing jointly, only those with billion more into the U.S. Treasury over the next ten- allowable mortgage interest, state income and local year period. The chained CPI is permanently applied income/property taxes (up to $10,000), and charitable to almost all amounts subject to annual inflation deductions that exceed $24,000 would claim them as adjustment, even the permanent amounts that would itemized deductions (absent extraordinary medical apply if provisions are allowed to expire after 2025. expenses). With fewer individuals claiming those de- ductions, this could have broad impact on both real COMMENT. H.R. 1 does not change the current estate prices and charitable organizations despite tax treatment of qualified dividends and capital retaining those two deductions, in modified form. gains IMPACT. The bill eliminates the deduction for IMPACT. The bill does not repeal the Affordable personal exemptions and the personal exemption Care Act's taxes, except for the penalty under the phase-out through 2025. That repeal, as scored by "individual mandate." Left untouched are the net the Joint Committee on Taxation, would raise $1.22 investment income (NII) tax, the additional Medicare trillion in revenue over the next 10 years. That re- tax, the medical device excise tax, and more. peal would reduce the net benefit of the standard deduction for most taxpayers. An enhanced child COMMENT. Legislation has been introduced and family tax credit is positioned to make up in Congress to extend the current suspension of the some of the difference for certain families. ACA's medical device excise tax, the health insurance provider fee, and the excise tax on high-dollar health plans. H.R. 1 does not address these ACA taxes. Deductions and Credits H.R. 1 makes significant changes to some popular individual credits and deductions. Many of the changes, Standard Deduction however, are temporary, generally ending after 2025, in H.R. 1 calls for a near doubling of the standard deduction. It order to keep overall revenue costs for the bill within increases the standard deduction to $24,000 for married in- budgetary constraints. dividuals filing a joint return, $18,000 for head-of-household Mortgage interest deduction. The bill limits the filers, and $12,000 for all other individuals, indexed for infla- mortgage interest deduction to interest on $750,000 of tion (using chained CPI) for tax years beginning after 2018. acquisition indebtedness ($375,000 in the case of married All increases are temporary and would end after December taxpayers filing separately), in the case of tax years begin- 31, 2025. Under current law, the standard deduction for 2018 ning after December 31, 2017, and beginning before January had been set at $13,000 for joint filers, $9,550 for heads of 1, 2026. For acquisition indebtedness incurred before 2017 CCH Incorporated and its affiliates. All rights reserved. December 20, 2017CCHGroup.com December 15, 2017, the hill allows current homeowners to keep the current limitation of 51 million {5500,000 in the case of married taxpayers filing separately). The bill alse allows taxpayers to continue to include maortgage interest on second homes, but within those lower dollar caps. However, no interest deduction wall be allowed for interest on home equity indebtedness. Q COMMENT. Sarme homeowners dodged a bul- let when the House and Senate conferees rejected the additional limitation in both the original House and Senate bills to increase the holding period for the homeowners' capital gain exclusion to a five- out-of-eight year principal-residence test. State and local taxes. The hill limits annual itemized deductions for all nonbusiness state and local taxes deductions, including praperty taxes, to 510,000 (55,000 for married taxpayer filing a separate return). Sales taxes may be included as an alternative to claiming state and local income taxes. Q COMMENT. The final ball short-circuits an immedhate year-end tax strategy by adding a prowvi- sion that disallows prepayment in 2017 of state and local income taxes imposed for a year after 2007 to avoid the new dollar limitation. Miscellaneous itemized deductions. The bill tempararily repeals all miscellaneous itemized deductions that are subject to the two-percent floor under current Law. Medical expenses. The bill temporarily enhances the medical expense deduction. The bill lowers the thresh- old for the deduction to 75 percent of adjusted gross imcame (AGI) for tax years 2017 and 2018, % IMPACT. The loss of many itemized deductions would channel an even greater number of taxpay- ers to the standard deduction. Big losers may include state and local governments that depend upon the federal itemized deductions for state and local income taxes and real estate taxes as on indirect subsidy for those taxes Limitations an the mortgage interest deduction will also likely hurt the housing industry. & IMPACT. Once again, the concessions for retaining some deductions are valuable only to those taxpayers who will do better continuing to itemize deductions than taking the higher standard deduction. Comparison of Tax Cuts and Jobs Act (H.R. 1) and Prior Law Child tax credit Individual rates Standard deduction Corporate rate Pass-through income Alternative minumum tax Personal exemptions y State and 1 local taxes Mortgage interest Prior Law (2017) 41,000 (refundable up to $1,000) 10, 15, 25, 28, 33,35,39.6% MFJ: 512,700 S: $6,350 HH: 59,350 35% maximum rate Same as individual rates Ind: 26, 28% Corp: 20% 44,050 Deductible %1 million limit 4 $2,000 (refundable up to $1,400) 10,12, 22, 24, 32,35, 37% MF): $24,000 S: $12,000 HH: $18,000 W 21% fat rate * 20% deduction Ind: exemption increased Corp: repealed X repeated Maximum $10,000 deduction W $750,000 imit December 20, 2017 Tax BriefingTax Cuts and jobs Act Family Incentives The bill temporarily increases the current child tax credit from $1,000 to 52,000 per qualifying child. Up to $1,600 of that amount would be refundable. The bill also raises the adjusted gross income phaseout thresholds, start- ing at adjusted gross income of 5400,000 for joint filers (5200,000 for all others). The child tax credit is further modified to provide for a 5500 nonrefundable credit for qualifying dependents other than qualifying children. & IMPACT. As @ credit, in contrast ta o deduction, the entanced child credit has been highlighted s one of the provisions that will lower overall tax liability for middle-class families Education The hill retains the student loan interest deduction. It alsa medifies section 529 plans and ABLE accounts. The bill does not averhaul the American Opportunity Tax Credit, as proposed in the original House bill. The final bill also does nat repeal the exclusion for interast on US. savings bonds used for higher education, as proposed in the House bill Q COMMENT. At the eleventh-hour, House and Senate conferees decided to retain the exclusion for graduate student tuition wanvers. Q COMMENT. The final il does not renew the thowve-the-line deduction for education expenses that expired at the end of 2096 and hod earlier been considered for inclusion in o separate \"extenders\" bill Alimony The bill repeals the deduction for alimony payments and their inclusion in the income of the reciplent. % IMPACT. To give taxpayers time to adjust to this mew balance in ossessing benefits and burdens, the mew rules will apply only to divorce or separation instruments executed after December 31, 2018, Retirement The final bill generally retains the current rules for 401(k) and other retirement plans. However, the bill repeals the rule allowing taxpayers to recharacterize Roth IRA contributions as traditional IRA contributions to unwind a 7017 CCH I Roth conversion. Rules for hardship distributions would be madified, among other changes. Q COMMENT. Initial proposals for more extensive changes to retirement plans to generate revenue resulted in immediate push-bock and were not revived by House and Senate conferees. Federal Estate Tax The final bill follows the original Senate bill in not repealing the estate tax, but rather doubling the estate and gift tax exclusion amount for estates of decedents dying and gifts made after December 31, 2017, and before [anuary 1, 2026. The genera- tion-skipping transfer (GST) tax exemption is also doubled. Q COMMENT. The original House bill called for repeal of the federol estate and GST taxes. The Conference Committee, largely to win support in the Senate, retained them in the final bill Q COMMENT. The current maximum federal estate tax rate 15 40 percent with an inflation-adjusted 55 million exclusion (85.49 million in 2007), which mar- ried couples can combine for a 510 million exclusion ($10.98 million in 2017). The new exclusion amounts will now allow married couples to exempt up to 522 million for 2018 {after adjustment for inflation) from arny estate or gift tax. Heirs, however, will continue to receive g \"stepped-up, date of death\" basis for inherited assets for purposes of any subsequent sale. Alternative Minimum Tax The final bill retains the alternative minimum tax (AMT) for individuals with medifications. The bill termporar- ily increases (through 2025) the exemption amount to $109,400 for joint filers {570,300 for others, except trusts and estates). It would alse raise the exemption phase-out levels so that the AMT would apply ta an income level af 51 million for joint filers (500,000 for others). These amounts are all subject to annual inflation adjustment. Affordable Care Act The bill repeals the Affordable Care Act (ACA) individual shared responsibility requirement, making the payment amount $0. This change would be effective for penalties assessed after 2018, Q COMMENT. The IRS has cautioned that, under cur- rent law, for tax year 2017, it will not consider a returm December 20, 2007 CCHGroup.com complete and accurate if the taxpayer does not report Vehicle Depreciation full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the return. The bill raises the cap placed on depreciation write-offs of business-use vehicles. The new caps will be $10,000 Carried Interest for the first year a vehicle is placed in service (up from a current level of $3,160); $16,000 for the second year (up Under the final bill, the holding period for long-term from $5,100); $9,600 for the third year (up from $3,050), capital gains is increased to three years with respect to and $5,760 for each subsequent year (up from $1,875) until certain partnership interests transferred in connection costs are fully recovered. The new, higher limits apply to with the performance of services. vehicles placed in service after December 31, 2017, and for which additional first-year depreciation under Code Sec. BUSINESSES 168(k) is not claimed. Corporate Taxes COMMENT. The limitations are indexed for inflation for passenger automobiles placed in H.R. 1 calls for a 21-percent corporate tax rate beginning service after 2018. in 2018. The bill makes the new rate permanent. The maxi- mum corporate tax rate currently tops out at 35 percent. Section 179 Expensing COMMENT. Although the current maximum The final bill enhances Code Sec. 179 expensing, The Confer- corporate tax rate is 35 percent, many corpo- ence bill sets the Code Sec. 179 dollar limitation at $1 million rations now pay an effective tax rate that is and the investment limitation at $2.5 million. considerably less. IMPACT. Although the differences between bo- Under the bill, the 80-percent and 70-percent dividends nus depreciation and Code Sec. 179 expensing would received deductions under current law are reduced to now be narrowed if both offer 100-percent write-offs 65-percent and 50-percent, respectively. The Conference for new or used property, some advantages and bill also repeals the AMT on corporations. disadvantages for each would remain. For example, Code Sec. 179 property is subject to recapture if busi- COMMENT. The original House bill repealed ness use of the property during a tax year falls to 50 the corporate AMT. The original Senate bill did not. percent or less; but Code Sec. 179 allows a taxpayer The Conference Committee ultimately decided to to elect to expense only particular qualifying assets follow the House version, effectively allowing some within any asset class. corporations to use certain tax benefits to effectively pay significantly below the new 21-percent rate. Deductions and Credits Numerous business tax preferences are eliminated. These Bonus Depreciation include the Code Sec. 199 domestic production activities H.R. 1 increases the 50-percent "bonus depreciation" allow- deduction, non-real property like-kind exchanges, and more. ance to 100 percent for property placed in service after Sep- Additionally, the rules for business meals are revised, as are tember 27, 2017, and before January 1, 2023 (January 1, 2024, the rules for the rehabilitation credit. for longer production period property and certain aircraft). A The bill leaves the research and development credit 20-percent phase-down schedule would then kick in. It also in place, but requires five-year amortization of research removes the requirement that the original use of qualified and development expenditures. The bill also creates a property must commence with the taxpayer, thus allowing temporary credit for employers paying employees who bonus depreciation on the purchase of used property. are on family and medical leave. IMPACT. The bonus depreciation rate has fluctu COMMENT. The Work Opportunity Tax Credit ated wildly over the last 15 years, from as low as zero (WOTC), proposed for elimination under the House percent to as high as 100 percent. It is often seen as a bill. Under current low, the WOTC is scheduled to means to incentivize business growth and job creation. expire after 2019.Tax Briefing-Tax Cuts and Jobs Act Interest Deductions electric vehicles. Other energy tax preferences, such as the residential energy efficient property credit, would The final bill generally caps the deduction for net interest have been modified. The final bill retains the credit for expenses at 30 percent of adjusted taxable income, among plug-in electric vehicles and did not adopt any of the other criteria. Exceptions would exist for small businesses, other repeals of or modifications to energy credits from including an exemption for businesses with average gross the House bill. receipts of $25 million or less. EXEMPT ORGANIZATIONS IMPACT. This provision is an attempt to "level the playing field" between businesses that capital- The Conference bill does not modify or repeal the so-called ize through equity and those that borrow. "Johnson amendment." This provision generally restricts Code Sec. 501(c)(3) organizations from political campaign activity. Pass-Through Businesses IRS ADMINISTRATION Currently, owners of partnerships, S corporations, and sole proprietorships - as "pass-through" entities - pay tax at the H.R. 1 extends from nine months to two years the period individual rates, with the highest rate at 39.6 percent. The for bringing a civil action for wrongful levy. The Confer- original House bill proposed a 25 percent tax rate for certain ence bill does not prohibit increases in IRS user fees, as pass-through income after 2017, with a nine-percent rate for proposed by the original Senate bill. certain small businesses. The original Senate bill generally would have allowed a temporary deduction in an amount INTERNATIONAL equal to 23 percent of qualified income of pass-through en- tities, subject to a number of limitations and qualifications. The final bill moves the United States to a territorial H.R. 1 generally follows the Senate's approach to the tax system. The bill creates a dividend-exemption system for treatment of pass-through income, but with some changes, taxing U.S. corporations on the foreign earnings of their including a reduction in the percentage of the deduction foreign subsidiaries when the earnings are distributed. allowable under the provision to 20 percent (not 23 percent), The foreign tax credit rules are modified, as would the a reduction in the threshold amount above which both the Subpart F rules. The look-through rule for related con- limitation on specified service businesses and the wage trolled foreign corporations would be made permanent, limit are phased in, and a modification in the wage limit among other changes. applicable to taxpayers with taxable income above certain threshold amounts. Repatriation A portion of deferred overseas-held earnings and IMPACT. The bill contains rules that would profits (E&P) of subsidiaries will be taxed at a reduced prevent pass-through owners-particularly service pro- rate of 15.5 percent for cash assets and 8 percent for viders such as accountants, doctors, lawyers, etc.-from illiquid assets. Foreign tax credit carryforwards will be converting their compensation income taxed at higher fully available and foreign tax credits triggered by the rates into profits taxed at the lower rate. deemed repatriation would be partially available to offset the U.5. tax. Net Operating Losses The final bill modifies current rules for net operating loss- IMPACT. The lower corporate tax rate may es (NOLs). Generally, NOLs would be limited to 80 percent also provide an incentive for businesses to not shift of taxable income for losses arising in tax years beginning operations overseas in the future. after December 31, 2017. The bill also denies the carryback for NOLs in most cases while providing for an indefinite COMMENT. GOP leaders in Congress have carryforward, subject to the percentage limitation. signaled that a technical corrections bill may be necessary in 2018 to "fix" drafting mistakes in H.R. 1. ENERGY It is unclear at this time how extensive those techni- col corrections could be or if they could move under The original House bill called for repealing many current the reconciliation process and not require a super- energy tax incentives, including the credit for plug-in majority for passage in the Senate. 2017 CCH Incorporated and its affiliates. All rights reserved. December 20, 2017