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What the Proposed Republican Tax Bill Could Mean for Individuals and Businesses
As Congress debates one of the most significant tax packages in years, businesses and individuals are watching closely to see how the proposed tax bill could impact their bottom line. The sweeping legislation, recently unveiled by House Republicans on May 12th, aims to extend and expand many of the provisions from the 2017 Tax Cuts and Jobs Act (TCJA), while introducing new breaks and making key changes that could affect taxpayers of all stripes. Here’s a breakdown of the most important elements under consideration.
Key Changes for Individuals
- Permanent Lower Tax Rates: The bill seeks to make the lower individual tax rates from the 2017 tax law permanent, preventing them from expiring at the end of 2025. This means the current marginal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) would remain in place, rather than reverting to higher pre-2017 levels.
- Increased Standard Deduction: Single filers would see a $1,000 boost, and married couples a $2,000 increase, in the standard deduction starting in 2025.
- Expanded Child Tax Credit: The child tax credit would temporarily rise to $2,500 per child through 2028, offering more relief to families.
- State and Local Tax (SALT) Deduction Cap Raised: The bill would triple the SALT deduction cap from $10,000 to $30,000 for those earning $400,000 or less, although this is still below the level some lawmakers from high-tax states have advocated.
- No Taxes on Tips and Overtime: In line with President Trump’s campaign promises, the bill proposes eliminating federal taxes on tips and overtime pay through 2028.
- Car Loan Interest Deduction: Taxpayers could deduct interest on car loans through 2028, with some exceptions.
- Estate Tax Exemption Increase: The estate tax exemption would rise to $15 million and be indexed for inflation, making it easier for families to transfer wealth without triggering estate taxes.
Key Changes for Businesses
- Enhanced Pass-Through Deduction: The 20% deduction for qualified business income from pass-through entities (like S corporations and partnerships) would be increased to 23%, and the provision would become permanent. The bill would increase, modify, and permanently extend the Section 199A deduction for pass-through businesses.
- Immediate Expensing and Bonus Depreciation: The bill reinstates immediate expensing for research and development costs, bonus depreciation, and enhanced interest deductibility-provisions that had expired but are highly valued by many businesses.
- International Tax Adjustments: Several changes to the international tax framework from the TCJA would be extended and modified, affecting multinational corporations.
What Happens Next?
The Republican tax plan is expected to face a contentious path through Congress, with debates over its cost, distributional effects, and specific provisions likely to continue in the coming weeks. Lawmakers hope to move the bill forward before the July 4th recess, but changes are possible as negotiations continue.
The proposed tax legislation is subject to change as it moves through Congress. Please consult with your CPA or tax advisor for guidance specific to your situation.