Business & Finance

The Opening Shot - Tax Reform Proposal is Finally Unveiled

f17fb45eb7040997a97a_images.jpg
Credits: WFP Tax Partners
a82bc4237766824493c7_ed___me.jpg
Walter is an Active Ed Slott Master Elite IRA Advisor Credits: wfp
f17fb45eb7040997a97a_images.jpg

BASKING RIDGE, NJ-  We share with you the alert from the Ed Slott Elite IRA Advisor Group regarding the latest news on the Tax Reform Proposal. It’s way to early to tell what will stay or what will go, but stay tuned.

It’s here! On the morning of Thursday, November 2, House Republican leaders finally released their delayed and much-anticipated tax reform plan. The bill, which is called the Tax Cuts and Jobs Act, is over 400 pages long and calls for a complete overhaul of the tax code. There are many changes proposed and there are winners and losers. It is the opening shot in what without a doubt promises to be an epic legislative fight. Here are some key items to watch as the tax battle begins in Congress.

401(k)s and IRAs Safe for Now

What is not in the tax bill is just as significant as what is included. There has been much discussion about eliminating or reducing the pre-tax salary deferrals for 401(k) plans. The bill keeps the current rules for tax-deferred 401(k)s and IRAs in place. There would be no reduction of contribution limits. Replacing pre-tax retirement savings options with after-tax Roth options, otherwise known as “Rothification,” is also not included the proposed legislation. 

Stretch IRA and NUA Survive

Also surviving, at least for now, is the stretch IRA. The bill does not call for its elimination. The tax break for Net Unrealized Appreciation (NUA) is currently spared as well.

Bye Bye Recharacterization?

Recharacterization is one of the rare do-overs allowed under the tax code. Clients who are having second thoughts about Roth conversions currently get a second chance. However, recharacterization’s days may be limited. The bill would eliminate this strategy and make conversions irrevocable. This change would apply to taxable years after December 31, 2017. Additionally, the ability to recharacterize IRA or Roth IRA contributions is also repealed.

Estate Tax Repeal

The bill calls for an increase in the estate tax exemption to $10 million (as of 2011, indexed for inflation), beginning in 2018. After 2023, the estate tax, and the generation skipping tax, would be eliminated completely while maintaining a full step up in basis. The gift tax would remain but with lower rates and an exclusion of $10 million.

Employer Plan Changes

The bill includes several provisions that would increase access to both in-service and hardship distributions from qualified plans. There is also good news for employees whose plan terminates or who separate from employment while they have plan loans outstanding. They would have until the due date for filing their tax return for that year to roll over the loan balance to an IRA to avoid the loan being taxed as a distribution. 

Deductions Disappear

The standard deduction for all taxes would increase to $12,000 for individuals and $24,000 for married couples. The child tax credit would be increased to $1,600 from $1,000. 

Tax reform may be bad news for clients who itemize deductions. On the chopping block are many popular deductions, such as the medical expense deduction. This would mean the end to the exception to the 10% early distribution penalty for distributions from retirement plans for deductible medical expenses. 

The deduction for personal casualty losses would be eliminated, except personal casualty losses associated with special disaster relief legislation, such as was recently passed for victims of Hurricanes Harvey, Irma, and Maria, would not be affected. 

The deduction for mortgage interest would be limited, as well as the state and local tax deduction.

Bracket Changes

The plan would reduce the number of marginal income-tax rates to three (12%, 25%, 35%) from the current seven: and would keep a rate of 39.6% for the very highest earners. 

AMT

The bill calls for the elimination of the Alternative Minimum Tax (AMT).

Pass-Through Businesses

The bill promises to lower the tax rate for “pass-through” businesses to 25% for a portion of income. A special formula would be used to determine what portion of income would qualify. 

Stay Tuned

While the first step has been taken towards sweeping changes to the tax code, there is a very long way to go before any of these proposals become law. We can expect a lot of heated debate and likely significant changes to this bill over the next few weeks. Stay tuned for the latest updates. 

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

South Brunswick-Cranbury

Upcoming Events

Sun, April 29, 2:00 PM

Otto Kaufman Community Center, Skillman

Relax, Rejuvenate, Renew

Health & Wellness

Carousel_image_655bff643922e36ca526_color_me_flyer_final_cut__3_-page-001

Sat, May 5, 9:00 AM

Sewaren

Color Me Run to End Domestic Violence

Sat, May 5, 8:00 PM

Bergen Performing Arts Center, Englewood

New Jersey Ballet's An Evening of Romance and ...

Arts & Entertainment

South Brunswick and Cranbury Police Blotter

August 9, 2017

Sponsored by Reilly's Collision Center in Monmouth Junction. Click here and scroll down for the latest updates and alerts from South Brunswick and Cranbury Police.

See the most recent messages from South Brunswick Twp Police Department, powered by Nixle.

Hospital ER Expands as Caseload Jumps to More than 100,000 Annually

April 24, 2018

NEW BRUNSWICK - More than 100,000 patients come through the emergency department at Robert Wood Johnson University Hospital, up from the approximately 40,000 cases that came through the doors less than 20 years ago.

 

"Spaces that were designed for one patient now have had two," said Dr. Robert Eisenstein, the hospital chief of emergency care. Obviously the number of ...

New Brunswick Water Department Workers Guilty in Scheme Costing City $500,000

NEW BRUNSWICK, NJ – Two city Water Department employees have pleaded guilty to charges of falsely reducing water to about 50 different properties in exchange for bribes, costing the city about $500,000, state officials announced.

Joseph “Gordo” DeBonis, 55 of Toms River, a suspended senior account clerk, and William “Billi” Ortiz, 56, of North Brunswick, a meter ...

Gun-wielding suspect drives robbery victim to bank with two young children in tow

NEW BRUNSWICK - Rutgers police are investigating a lunchtime robbery on Tuesday in front of Campbell Hall, 617 George St., on the College Avenue campus, which involved two young children and a trip to a Somerset Street bank.

The victim, who is affiliated with Rutgers University, reported that he was walking near Campbell Hall dorm at 12:30 p.m. when a vehicle, ...

Step Outdoors and Into Spring with the Rutgers Cooperative Extension of Middlesex County

April 25, 2018

Looking for something to do outdoors? The Rutgers Cooperative Extension of Middlesex County is pleased to announce its spring and summer events! There will be opportunities for kids and adults to learn the basics of gardening, for experienced gardeners to sharpen their skills and for bargain hunters to add to their collections.

These events are free of charge and will take place at the EARTH ...

Reps. Watson Coleman, Pallone, Sires and Espaillat Lead Introduction of Commonsense Gun Violence Prevention Legislation

Today, Congresswoman Bonnie Watson Coleman (D-NJ) joined co-sponsors Congressmen Frank Pallone (D-NJ), Albio Sires (D-NJ) and Adriano Espaillat (D-NY) to announce The Handgun Licensing and Registration Act of 2018. This legislation would overturn an outdated 1986 law to build a framework of commonsense standards for handgun gun ownership in the United States by creating a federal licensing and ...

High School, College Students Sought For County Youth Conservation Corps

MIDDLESEX COUNTY, NJ - Middlesex County is looking for high school and college students who want to improve and protect our environment and don’t mind lifting, bending, and getting dirt under their fingernails.

Applications are now being accepted for the Middlesex County Youth Conservation Corps, whose mission is to protect and preserve the more than 8,000 acres of Open Space ...