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The U.S. House and Senate approved the final conference report on the Tax Cuts and Jobs Act on Wednesday, December 20, representing the most sweeping changes to the U.S. tax code in more than 30 years. The package lowers both individual income and corporate income taxes and moves the United States to a territorial system of business taxation

Significant changes were made to the pass-through provisions, Alternative Minimum Tax, and private activity bonds during the legislative process.

"We applaud the U.S. Congress and the Administration for taking critical steps to modernize our nation's tax code to spur economic growth and increase competitiveness. This legislation will benefit domestic manufacturers, including the U.S. metalcasting industry," said Doug Kurkul, CEO of the American Foundry Society (AFS). "The last comprehensive update to the U.S. tax code was in 1986 and is long overdue. Significant proposals, such as lowering the tax rates for S-Corporations, C-Corporations, and strong cost-recovery provisions, will help ensure our tax system is pro-growth to benefit American consumers, manufacturers, and the economy."

Key provisions included in the final Tax Cuts and Jobs Act impacting the U.S. metalcasting industry are:

* Pass-through deduction. Allows most taxpayers with pass-through income to deduct 20% of that income based on wages or on wages plus a capital element.

* Corporate tax rate. Implements a corporate income tax move from a graduated system with a top rate of 35% to a flat tax of 21%.

* Alternative Minimum Tax. Eliminates the Alternative Minimum Tax (AMT) for corporations and increases the AMT exemption amounts and phase-out thresholds for individuals.

* Estate tax. Doubles the estate tax exemption.

* R&D tax credit. Makes permanent the R&D tax credit. But, the bill changes the treatment of deductible research and experimental costs starting January 1, 2022. After that date, these expenses must be amortized over five years.

* Last-In First Out accounting method. Maintains the Last In, First Out (LIFO) accounting method to measure financial performance and calculating taxes.

* Carried interest. Retains existing carried interest rules, but assets must be held for three years.

* Bonus depreciation. Provides for full expensing for property acquired between September 28, 2017, and December 31, 2022. Thereafter, the bonus depreciation percentage decreases by 20 points per year, phasing out entirely by 2027. The final bill no longer requires property eligible for bonus depreciation to be new; it extends this benefit to used property as well.

* Business interest deduction. Provides the taxpayer a choice of making a onetime election for a deduction limited to 30% of adjusted gross income.

* Private activity bonds. Retains private activity bonds (PABs), which preserves the ability of communities to issue tax-exempt municipal bonds to finance a host of infrastructure projects, including drinking water and wastewater infrastructure projects.

* State and local property taxes. Allows taxpayers to deduct up to 110,000 of state and local taxes, including property taxes and the choice of income or sales taxes.

Stephanie Salmon, AFS Washington Office; Jeff Hannapel & Christian Richter, The Policy Group, Washington, D.C.

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Author:Salmon, Stephanie; Hannapel, Jeff; Richter, Christian
Publication:Modern Casting
Date:Jan 1, 2018
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