Details of the long-awaited GOP tax bill have finally been released in aframework document that summarizes the major changes that the newadministration is hoping to achieve.

The document emphasizes the primary goals of simplifying the taxcode for both individuals and small businesses while also reducingthe tax burden at both levels.

While this document does not represent a final piece oflegislation, it does provide a starting point for members ofCongress to begin negotiating, potentially leading to acomprehensive tax reform bill.

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This article is the first in a series of articles that willexamine the progress of these negotiations, as well as the impact that proposed tax reform could have onboth individual and small business clients.

Framework for individual taxpayers

The framework document both proposes consolidating the currentseven-bracket tax rate system into three brackets (12%, 25% and35%) and nearly doubling the standard deduction to $24,000 formarried taxpayers filing jointly and $12,000 for singletaxpayers.

It leaves open the possibility that an additional, higher taxrate for wealthy taxpayers could be included in order to ensurethat the tax system remains progressive (the current top tax rateis 39.6% for the highest income taxpayers).

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The personal exemption for dependents would be eliminated, butthe child tax credit would be expanded by increasing the incomelevels at which the credit begins to phase out with the goal ofmaking the credit available for more taxpayers.

Under the framework, most itemized deductions would beeliminated (details have not been provided, but the mortgageinterest and charitable contributions deductions were mentioned asdeductions that would not be eliminated).

The currently existing alternative minimum tax (AMT) would berepealed entirely.

Both the estate tax and the generation skipping transfer (GST)tax would be repealed under the framework.

While no details are provided, the framework directs the variouscommittees that will be involved in negotiating a comprehensivebill to retain benefits that encourage work, higher education andretirement security in a more simplified manner.

Framework for small businesses

Under the framework legislation, the maximum tax rate for soleproprietorships, partnerships and S corporations (pass-throughentities) would be 25%, and the maximum tax rate for C corporationswould be reduced from 35% to 20% (the proposal also aims toeliminate the corporate AMT).

Generally, businesses in the new 25% tax bracket could see areduction in taxes, as their income is currently taxed at theindividual level where the highest rate is currently 39.6%.

Immediate expensing of new depreciable asset purchases would beallowed for at least five years under the framework, but thecorporate interest expense deduction would be limited (no detailsare provided as to how).

The framework indicates that many business-related deductionsand exclusions will be eliminated (including the Section 199domestic production deduction), but the credits for research anddevelopment and low-income housing will remain.

Additionally, the framework proposes modifying certainindustry-specific tax rules that currently apply, with the aim ofreducing opportunities for tax avoidance.

Continue to monitor tax plan negotiations

While the tax reform framework provides few details as to howmany of its goals would be accomplished, it is intended to providethe broad stroke details of what could eventually become acomprehensive tax reform bill.

Clients should continue to monitor the progress of negotiationsin order to hopefully gain a clearer picture of how tax reformcould impact their planning needs.