- The legislation does not extend the biodiesel blenders' tax credit or the tax credit associated with natural gas refueling infrastructure. NATSO did not expect these provisions to be included in the bill, and will continue to work with lawmakers in the coming weeks to extend these important policies.
- The legislation preserves the use of so-called last-in-first-out (LIFO) accounting rules to let companies value inventory at the price the inventory sells for rather than the original purchase cost.
- The bill would permanently repeal the estate tax effective January 1, 2024. It would immediately double the exemption to $11.2 million per individual and $22.4 million per couple with portability. The bill would maintain the gift tax at current levels until Jan. 1, 2024, and then cut the gift tax rate to 35 percent on gifts over roughly $12 million.
- To illustrate how the estate tax phase-down would work, take an example of the estate of a family business owner with $30 million in total assets: Under current law (for 2018), the estate may exempt $5.6 million in assets ($30 million minus $5.6 million = $24.4 million x 40 percent estate tax rate = $976 million tax bill. Under the proposed law from Jan. 1, 2018, to Jan. 1, 2024: The estate would be able to exempt the first $11.2 million from estate taxes ($30 million minus $11.2 million = $18.8 million x 40 percent estate tax rate = $7.52 million tax bill ($2.24 million savings vs. current law). Beginning Jan. 1, 2024, the estate tax is permanently repealed ($0 tax bill, $9.76 million savings vs. current law). This is potentially the difference between keeping a business in a family and being forced to sell to a competitor.
- The bill permanently repeals the generation-skipping tax effective Jan. 1, 2024.
- Maintains credit for a portion of employer social security taxes paid with respect to employee tips. This will enable employers to continue to claim an income tax credit equal to its share of FICA taxes attributable to tips received from customers in connection with restaurants. The bill would, however, require all restaurants claiming the credit to report to the IRS tip allocations among tipped employees (allocations at no less than 10 percent of gross receipts per tipped employees, rather than 8 percent), which is a reporting requirement now required only of restaurants with at least 10 employees.
- The bill would cut the corporate tax rate to 20 percent.
- The bill also would apply a 25 percent rate to business income earned by owners and shareholders of certain pass-through entities. (Current law taxes such income as personal income subject to individual rates.)
- The determination of whether income is subject to the 25 percent pass-through rate or the (likely higher) individual rates depends on whether the income is derived from passive or active business activities under the bill. This determination (active vs. passive), in turn, will rely on the current material participation rules in section 469 and the underlying regulations. (Income of passive owners would be treated entirely as business income.)
- A 30/70 rule would generally apply to income derived from active business activity -- 30 percent of such net income (the "capital percentage" portion) would be treated as qualified business income, while the remaining 70 percent would be subject to ordinary income tax rates. ALTERNATIVELY, business owners can apply a formula based on the "facts and circumstances" of their business to determine a capital percentage portion of greater than 30 percent. This formula would generally measure capital percentage based on a rate of return multiplied by the capital investments of the business. The election of this alternative formula would be binding for a five-year period.
- The bill would eliminate the $7,500 per vehicle tax credit for electric vehicle purchases beginning after the 2017 tax year.
- The bill would bar the sale of municipal bonds for privately run infrastructure projects such as toll roads. This step is at odds with President Trump's push to increase funding for public works via private capital. If passed, the result would be increasing the value of currently outstanding municipal bonds but undercutting the potential for such bonds to act as a cornerstone for financing U.S. infrastructure. Scrapping this tax exemption would not eliminate private investment outright, however, as businesses interested in running infrastructure projects could still borrow in the corporate debt market (albeit at a higher cost).
- Large oil companies are happy with the proposal as it maintains most of the existing tax incentives for their high-capital, low-operating-cost business model (such as the intangible drilling cost deduction and depletion allowance).
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