The Tax Cuts and Jobs Act was passed last December, and the ramifications on many American taxpayers have been huge. But an addition to this reform is now underway, and last week, House Speaker Paul Ryan announced that the second stage of tax reform legislation will be ready for a vote sometime this month. The House Ways and Means Committee has distributed the outline of the proposal, but the details are still being sorted out. So what do we know so far about Tax Reform 2.0?
What Types of Changes Does Tax Reform 2.0 Propose?
The House Majority Whip has mentioned that some of the tax cuts, which were short-term in the first iteration of the tax reform due to Senate rules, may be made permanent in Tax Reform 2.0. For instance, the rate reductions and the double tax credit for children are scheduled to expire in 2025. The second draft would make the individual tax cuts permanent – the corporate tax cuts were already made permanent. The dilemma that has not yet been resolved is the budget deficit that will be created by making these tax cuts permanent, which is estimated to be 627 billion dollars per decade.
The Tax Cuts and Jobs Act also cut corporate tax rates from 35% to 21%, and President Trump has suggested that rate may be lowered even further – to 20%. Tax Reform 2.0 will also likely include increased deductions to expenses that come along with starting a new business, which could create more expat entrepreneurs.
Tax Reform 2.0 contains some proposed changes to current IRAs. As it stands, workers generating earned income cannot contribute to a traditional IRA after the age of 70 ½. The new tax reform would get rid of this age limit, which could be a boon to older workers. Further, self-employed people are able to pay into a SEP (Simplified Employee Pension) or SIMPLE IRA without an age limit – and the new reform would allow regular employees to do the same with traditional IRAs. Lastly, the age limit would be eliminated from older workers who would like to contribute to their non-working spouse’s IRA; they could now do so beyond the age of 70 ½.
Questions About How the Tax Reform Could Affect You?
The Greenback team is at the forefront of the sweeping changes to the American tax code. If you’d like help with tax planning or have some general questions about how to prepare for the upcoming changes, contact Greenback today!