On May 12th, the House Ways and Means Committee released its version of proposed tax legislation. While this draft is far from becoming law, it provides early insight into what may come later this year in terms of federal tax changes. The proposal primarily builds upon and extends several key provisions from the Tax Cuts and Jobs Act (TCJA), introduces new forms of tax relief, and rolls back several energy-related tax credits.
Here are the most important provisions businesses and individuals should keep an eye on:
1. Extensions and Enhancements of TCJA Provisions
The proposed legislation would extend many cornerstone elements of the TCJA, with some enhancements:
- Retention of Current Tax Rates: The top individual tax rate of 37% would remain in place.
- Increased Standard Deduction: The expanded standard deduction would continue, while personal exemptions would remain eliminated.
- Child Tax Credit: The credit would increase by $500, bringing the total to $2,500 per child.
- Qualified Business Income Deduction (QBID): The deduction would increase from 20% to 23% for eligible taxpayers.
- Estate and Gift Tax Exemption: The exemption would not only be extended but increased to $15 million per individual.
- Miscellaneous Itemized Deductions: These would be eliminated entirely under the new proposal.
2. New Tax Relief for Individuals
A range of new benefits is proposed to reduce tax burdens and encourage spending:
- Tip Income Deduction: Certain tip income reported on W-2s and 1099s would be excluded from taxable income.
- Overtime Pay Deduction: A federal deduction for income earned through overtime work is included.
- Car Loan Interest Deduction: Taxpayers could deduct interest on car loans—if the vehicle is assembled in the U.S.
- Charitable Contributions: A partial deduction for charitable giving would return for non-itemizers—$300 for joint filers, $150 for single filers.
- Education Support: A tax credit of up to $5,000 would be available for contributions to Scholarship Granting Organizations (SGOs), modeled similarly to credits already available in states like Ohio.
3. Incentives for Business Growth and Innovation
A number of provisions are aimed at supporting U.S. manufacturing, R&D, and small businesses:
- 100% Bonus Depreciation: Extended for qualified property placed in service between 2025 and 2030.
- Section 174 R&D Deduction: Domestic research expenses would once again be fully deductible (no amortization required) for tax years 2025 through 2029.
- EBITDA-Based Interest Limitation (Sec. 163(j)): Returns the calculation of adjusted taxable income to an EBITDA basis for the same period.
- Section 179 Expensing: The immediate expense limit for qualifying property would increase to $2.5 million.
- Small Business Expansion: The gross receipts threshold for small manufacturing businesses would be raised to $80 million
4. Changes to the SALT Deduction and Energy Incentives
The proposal also includes substantial changes to the state and local tax (SALT) deduction and energy credits:
- Increased SALT Cap: The deduction cap would increase to $30,000 for joint filers ($15,000 for married filing separately), but would phase down for households earning more than $400,000 in modified AGI.
- Minimum SALT Deduction: The cap could not drop below $10,000 regardless of income.
- Reporting Requirements: Pass-through entities (partnerships and S corporations) would need to separately report SALT amounts on tax filings.
- Energy Credits: Several existing energy tax credits would be reduced or eliminated under the proposal.
Important Note: PTET Deduction Limitation
An important fine print item in the proposed bill restricts the Pass-Through Entity Tax (PTET) deduction for specified service trades or businesses (SSTBs)—including doctors, lawyers, accountants, and other professionals. This has already sparked concern from organizations like the AICPA, who are advocating for a broader inclusion of industries in this deduction.
What This Means for You
While this legislation is still in the proposal stage, it’s a clear signal of where lawmakers may be headed in the coming months. It’s particularly relevant for:
- High-income individuals and business owners interested in estate planning, charitable giving, or pass-through taxation;
- Small and mid-sized businesses with domestic operations or manufacturing investments;
- Taxpayers who may benefit from expanded deductions and new relief provisions
Stay Ahead of What’s Next
As this proposed legislation evolves, our team at Meaden & Moore is closely monitoring developments. We’ll continue to provide updates and strategic guidance to help you prepare for potential changes.
Have questions about how this could impact your business or personal tax strategy? Reach out to your Meaden & Moore advisor or contact us today to start a conversation.