The bills focus on making permanent certain provisions of the Tax Cuts and Jobs Act (TCJA) that affect individuals, families, and small businesses. They also promote family and retirement savings and new business innovation. For example, one proposal would allow new businesses to write off more of their initial start-up costs. Here’s a brief overview of the three bills.
Protecting Family and Small Business Tax Cuts Act
Many provisions of the TCJA currently are scheduled to expire after 2025. The proposed Protecting Family and Small Business Tax Cuts Act of 2018 would make the following individual and business-focused provisions permanent:
- Lower individual tax rates;
- Increase in the standard deduction;
- Increase in and modification of the child tax credit;
- Repeal of the deduction for personal exemptions;
- Limitation on the deduction for state and local taxes (the SALT deduction);
- Limitation on the deduction for qualified residence interest;
- Termination of miscellaneous itemized deductions;
- Deduction for moving expenses limited to members of the armed forces;
- Increase in the unified gift and estate tax exemption; and
- Increased alternative minimum tax exemption for individuals.
- Deduction for qualified business income; and
- Limitation on losses for taxpayers other than corporations.
Family Savings Act
The second bill, the Family Savings Act of 2018, provides for changes to retirement and education accounts and creates a new tax-deferred savings account. Specifically, this proposed law would:
- Establish Universal Savings Accounts, described as a “flexible savings tool that families can use any time that’s right for them”;
- Expand Section 529 plans;
- Allow penalty-free withdrawals from retirement plans for individuals in the case of a birth of a child or adoption;
- Provide rules for multiple employer plans and pooled employer plans that would “allow small businesses to join together to create a 401(k) plan more affordably”;
- Provide rules relating to the election of safe harbor 401(k) plan status;
- Treat certain taxable non-tuition fellowship and stipend payments as compensation for IRA purposes;
- Repeal the maximum age for traditional IRA contributions;
- Prohibit qualified employer plans from making loans through credit cards and other similar arrangements;
- Provide for portability of lifetime income investments;
- Explain the treatment of custodial accounts on termination of Section 403(b) plans;
- Clarify retirement income account rules relating to church-controlled organizations;
- Exempt individuals with certain account balances from required minimum distribution rules; and
- Clarify the treatment of certain retirement plan contributions picked up by governmental employers for new or existing employees.
American Innovation Act
The third bill, called the American Innovation Act of 2018, is the briefest of the three at 15 pages. It would allow new businesses to deduct up to $20,000 in start-up expenses in the year they are incurred, so long as they meet certain qualifications. Specifically, this bill would:
- Simplify and expand deductions for start-up and organizational expenditures; and
- Preserve start-up net operating losses and tax credits after an ownership change.
A full House vote on the bills is expected to take place at the end of September or in October. If the bills pass the House, it is not expected that the legislation will be taken up in the Senate before the midterm November elections, though experts believe the provisions on retirement savings could eventually find bipartisan support. A major sticking point is the estimated price tag of the legislation—$627 billion over the next decade—according to a recent analysis by the Joint Committee on Taxation.
Regardless of the chances of passage, it is important to keep abreast of any tax law changes. We can answer your questions on how current tax laws and any proposed legislation may affect your individual or business tax planning.