A Not-So-Big-Or-Beautiful Article on Tax Reform

Introducing round 1 of proposals

Introduction

I am a firm believer in sticking with the things I can competently teach. This does not include the nuances of the U.S. budget reconciliation process, or how this might affect tax reform in 2025 or beyond. In fact, Schoolhouse Rock does the subject way more justice than I can:

But, we do now have a working draft of a proposed tax bill. Predicting the final outcome is perhaps more futile than predicting the weather in December 2025 or beyond. Nonetheless, in the spirit of making sure you stay up to date, here is a quick breakdown.

The Bill

For the time being, this can be found on the Markups page of the website for the House Ways and Means Committee. Since this may at some point pivot to a House or Senate bill, these may be better sources to bookmark for reference. Nonetheless, my goal is not to overwhelm you with information and updates. There are tons of people on LinkedIn, X, Bluesky, and other platforms who will do a far better job of keeping you informed. I will bring you articles on the proposals when developments are significant enough, as determined in my sole and absolute discretion. For now, however, here are some key proposals from the most recent amendment:

• The estate tax basic exclusion is being set at $15,000,000, adjusted for inflation each year after 2026.

• The QBI deduction under IRC Section 199A will be increased to 23%, with certain dividends from REITs and electing business development companies being added to the definition of QBI.

• The increased standard deduction and child tax credit, and corresponding loss of personal exemptions, will be made permanent.

• The elimination of miscellaneous itemized deductions is made permanent, and the calculation for the phase-out of itemized deductions will change - with the reduction now being the lesser of (1) 2/37ths of the itemized deductions, or (2) the amount of taxable income over the bound at which the 37% rate bracket begins.

• New deductions for qualified tips and qualified overtime compensation, each of which will be allowed for non-itemizers.

• Certain interest on loans to acquire qualified passenger vehicles will not be classified as personal interest, thus making it deductible with a cap of $10,000 in interest and a phase-out of $200 for each $1,000 by which MAGI exceeds $100,000 single (or $200,000 joint).

• An expansion of (federal) qualified education expenses from a 529 plan to include certain expenses of tutoring and/or relating to homeschooling, along with qualified postsecondary credentialing expenses.

• The creation of a new tax-deferred form of custodial account for children and young adults called a “money account for growth and advancement” or “MAGA” account, which can be funded with up to $5,000 per year until the beneficiary reaches age 31 and from which distributions (from earnings and not from the investment basis portion of the account) for qualified expenses are taxed as capital gains and not ordinary income.

• Including gym expenses in permitted HSA payments, up to $500 ($1,000 joint) per year.

• Extension and enhancement of certain bonus depreciation and expensing limits.

By no means is this list intended to be all-inclusive, as there were several other provisions on issues such as rural investment and lending, changes to energy credits, health insurance coverage credits, excise taxes for endowments, and other items that are likely to change or be trimmed in any final legislation.

For now, stay tuned for further updates as things coalesce.