US Tax Reform: What Investors Need to Know
While Ben Franklin once said nothing is certain but death and taxes, aspects of the latter appear all but certain to change next year. With both branches of Congress passing tax-reform legislation, now it’s up to a committee of negotiators from the House of Representatives and the Senate to reconcile the differences between their two bills. It seems there is a goal to get the final bill in front of President Trump in just a couple of weeks, before Congress breaks for the holidays.
The Senate and House versions of the “Tax Cuts and Jobs Act” do have differences that are still up for debate.
One of the main differences that may affect all US citizens is the tax brackets.
Currently, there are seven tax brackets for individuals: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The Senate bill also has seven tax brackets, which cap out at 38.5%. For most income brackets, there would be a reduction. Meanwhile, the House bill has only four brackets: 12%, 25%, 35% and 39.6%.
On the corporate side, the House bill cuts the corporate tax rate to 20% (from 35% currently), starting in 2018. The Senate bill also drops the rate to 20%, but it would not take effect until 2019.
There are several other nuances that are beyond the scope of this article, and we encourage you to do your own research on the subject. As our area of focus is on investing, we would like to highlight a few aspects of tax reform that stand out to us. Not only in terms of how investments are taxed, but also in terms of changes to how individuals save and invest for college, retirement or some other goal.