Last week the House and Senate formally voted to go to conference on the “Tax Cut and Jobs Act,” which means that this significant legislation is much closer to becoming permanent law.
The two bills have very significant differences, including the treatment of individual income tax rates, the state and local tax (SALT) deduction, and the Senate bill’s corporate Alternative Minimum Tax (AMT).
The committee also needs to resolve differences in the House and Senate bills regarding interest deductions. The House bill uses Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) to compute adjusted taxable income for purposes of applying the 30% limitation to the businesses interest expense deduction, and exempts any business with average annual gross receipts of $25 million or less from any limitation on interest deductions.
The Senate bill sets $15 million as the threshold, while only using EBIT (removing Debt and Amortization from the calculation) to compute adjusted taxable income.
What Tax Clients Need to Know
Many of the changes to the Internal Revenue Code in the Senate bill are temporary. The House bill, in contrast, calls for permanent changes to the Internal Revenue Code. This important difference between the two bills will be high on the agenda of any conference to iron out a final bill.
Taxpayers need to plan for several possible contingencies: passage of a final tax reform bill before year-end, passage of the bill in early 2018, or the bill failing to move forward. The proposed changes in both the House bill and the Senate bill are forward-looking (after 2017 tax year) for the most part.
Read the entire Side by Side Comparison of the House and Senate versions of the Tax Cuts and Jobs Act prepared by the staff of the Joint Committee on Taxation.
As Congress irons out the final tax reform legislation, MCB will keep clients informed of the legislative changes and the impact on our tax clients. Please contact an MCB Tax Advisor today if you require advice for year-end tax planning by clicking here or call us at 703.218.3600.