December Advocacy Roundup: Is this the Last Word on Tax Reform? Probably Not.

December 21, 2017

Mark Lee, Policy Director, Government Relations, AEO

As we said last month, nothing motivates Congress like the possibility of missing Christmas. On December 20, Congress passed the “Tax Cuts and Jobs Act,” without a single Democratic vote.  President Trump plans to sign it into law in early January. By Congressional standards, the speed at which this overhaul moved is nothing short of remarkable. 

And we had a front-row seat to this first major tax overhaul since the 1980s: AEO pressed the case for tax reform, targeting the needs of the nation’s entrepreneurs and microbusinesses throughout the year. It is significant that the more than 90% of small businesses organized as pass-through entities finally have a specific carve-out regarding taxation. Here’s what you need to know about the final bill:

  • Pass-throughs: A 20% deduction on net business income for filers under $157,000 single/$315,000 married. For income over those caps, the 20% deduction is applied to either 50% of wages, or 25% of wages + 2.5% of cost of depreciating property. Some personal services companies, such as engineers and architects, are eligible for the 20% deduction, but most personal service companies are not. Expires after 2025. 
  • Corporate tax rate: 21%. This provision is permanent.
  • Individual rates: Seven brackets – 10, 12, 22, 24, 32, 35, 37%. These rates will expire after 2025.
  • New Markets Tax Credit: There has been no change to this law. Expires after 2019.
  • Opportunity Zones: Establishes opportunity zones and allows the temporary deferral from gross income for capital gains reinvested in a qualified opportunity fund, and the exclusion of capital gains on the sale of the investment. Expires after 2026.
  • Alternative Minimum Tax (AMT): Corporate repealed, individual AMT phased in at $70,300 single/$109,400 married. Phase-out begins at $500,000 single/$1 million married.
  • Not included: An expansion of the Volunteer Income Tax Assistance program (VITA), and updates to the code affecting the gig economy.  

You can find a more detailed breakdown of the bill here.  

We want to take this opportunity to thank all of our members for their grassroots advocacy in support of entrepreneurs and microbusinesses — it is absolutely critical to our success in Washington. However, this bill may not be the last word on tax reform. Due to the speed at which the bill moved, and confusion regarding the effects of its provisions — especially on pass-throughs — there will likely be a bill with technical corrections next year. AEO will continue our advocacy on Capitol Hill as this process unfolds.  

On behalf of AEO’s Government Relations team, have a wonderful holiday season, and stay tuned in 2018! 

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