Federal Tax Bill Passes Congress
Friday, December 22, 2017
Last week, the U.S. Congress passed the most significant federal tax reform legislation since 1986. The new tax framework will reduce tax rates for individuals and businesses, and the overall impact on the U.S. economy is expected to be positive. The Tax Foundation’s preliminary analysis indicates that the legislation will boost U.S. GDP by 1.7 percent and wages by 1.5 percent over the next decade.
According to the Minnesota Chamber of Commerce, key business tax provisions include:
- Pass-through entities reporting business income on personal income taxes will benefit from: lower individual income tax rates and bracket expansions; reduction in the top individual rate from 39.6 percent to 37 percent; and a deduction equal to 20 percent of qualified business income.
- Corporations will benefit from: a permanent corporate rate of 21 percent (reduced from the current 35 percent top rate); repeal of the corporate alternative minimum tax; and adoption of a territorial taxation system.
Additional changes of interest to businesses:
- Section 179 expensing increases to $1,000,000 with the phase-out threshold increased to $2,500,000.
- “Bonus depreciation” is increased to 100 percent for qualifying property (including “used” property) placed in service after September 27, 2017, and before January 1, 2023.
- Interest expense is limited to 30 percent of adjusted taxable income.
- The estate tax threshold is doubled from current $5.6 million to $11 million.
The individual health insurance mandate is effectively repealed in 2019 by reducing the penalty to $0. Current law has a penalty of $695 or 2.5 percent of income, whichever is higher.
Provisions of interest to individuals include: doubling of the standard deduction, repeal of personal exemption allowances, enhanced child tax credit, and repeal/revision of many federal itemized deductions.
The changes will significantly impact the current tax system – businesses are strongly encouraged to contact their tax professionals to consider the potential impact on their business.
At the state level, additional measures to synchronize state tax law with the federal changes will be vital in 2018. MPMA is at the table representing Minnesota’s manufacturers for these important tax policy conversations.
Watch for more detailed analysis from MPMA in coming weeks on how the new tax framework will impact Minnesota manufacturers and what we can expect at the state legislature in 2018.
-- Amy Walstien, Executive Director