House Republicans unveiled a first draft of the Tax Cuts and Jobs Act last week, offering a glimpse into the direction tax reform discussions are likely to take over the next several months.

In short, the biggest winners would be large corporations, taxpayers who don’t take lots of itemized deductions and large estates passed along to heirs. The highest earners also would benefit.

But a lot could change between now and the time a tax reform package reaches Congress for a vote and the President’s desk for a signature. With that in mind, we offer this brief overview of the House bill as it stands today, with a focus on changes that could impact our clients.

The Biggest Benefactor: Big Business

The underlying premise of the GOP’s tax plan is that a lower corporate tax rate will spur the US economy, create jobs and improve the average American worker’s standard of living. US corporations would pay a flat income tax rate of 20%, down from the current maximum of 35%, and smaller pass-through entities such as family-owned businesses that operate as sole proprietorships, partnerships and S corporations would pay a maximum rate of 25%, down from 39.6%.

The GOP’s proposal also attempts to encourage capital spending by allowing companies to immediately deduct 100% of their expenses for qualified property that is purchased between September 27, 2017 and January 1, 2023. Any dividends a business receives from an overseas subsidiary could also be deducted as long as the company owns 10% or more of the foreign corporation. US corporations also would be required to bring accumulated foreign earnings back home to the US—a practice known as repatriation—at a special tax rate of 12% for cash and equivalents and 5% for illiquid assets. Businesses can elect to make this liability payable over the course of eight years.

Lower Tax Rates Proposed for Most Individuals…

Another common refrain among proponents of tax reform is that the US tax code is unwieldy and overcomplicated. The GOP attempts to address this criticism by reducing the number of individual tax brackets from seven to four (12%, 25%, 35%, 39.6%).

In general, it appears that most Americans would see a tax rate reduction, but the bill is especially generous to taxpayers who are subject to the current maximum rate of 39.6%. While that top bracket remains in effect, it would apply to individuals earning over $500,000, up from $418,400, and married couples with income exceeding $1 million, almost twice the current threshold of $470,700. The alternative minimum tax would be repealed.

On the other hand, most taxpayers who are now in the 33% tax bracket would be bumped up a notch into the 35% bracket. Qualified dividend income and long-term capital gains generally would be unaffected by the new tax proposal. Both would continue to be taxed at 0%, 15% or 20%, depending on individual circumstances. The bill does not address the Obamacare surcharge, which is a 3.8% tax on net investment income over a certain amount, or the 0.9% additional Medicare withholding tax on earned income that exceeds certain thresholds.

…But Many Perks Would be Eliminated

The GOP is also attempting to streamline the US tax code (while limiting increases in the federal deficit) by restricting itemized deductions, but raising the standard deduction for all taxpayers to $12,200 for individuals and $24,400 for married couples, almost double the current standard deduction now allowed.

The list of repealed items would include:

• Personal exemptions
• Alternative Minimum Tax
• $7,500 tax credit for purchasing electric vehicles
• Deductions for state and local income taxes and sales tax
• Out-of-pocket medical expense deductions
• Personal casualty loss deductions
• Tax preparation fee deductions
• Alimony payment deductions for divorces after 2017
• Moving expense deductions
• Employee business expense deductions
• Deductions for mortgage interest on second homes and home equity loans

A handful of itemized deductions would still be allowed, including interest payments on mortgages of up to $500,000 for primary residences, down from the current level of $1 million. But deductions would generally not be allowed for home equity loans, interest on mortgages for second homes or property taxes for real estate holdings overseas. Deductions for domestic real estate taxes would be capped at $10,000.

The GOP’s tax overhaul plan also attempts to encourage philanthropy by raising the deduction for cash contributions to qualified charities. The current maximum deduction, 50% of an individual’s adjusted gross income (AGI) in any given year, would be pushed up to 60%. Private foundations that currently pay an excise tax of 1% or 2% on net investment income would pay a flat rate of 1.4%.

Goodbye to the Federal Estate Tax?

One of President Trump’s campaign promises last November was repealing the federal estate tax. Beginning in 2018, the GOP would double the exemption for federal estate tax and the Generation Skipping Transfer Tax (GSTT) to $10 million for individuals and twice that amount for married couples, adjusted periodically for inflation. The step-up provision for appreciated assets would remain in effect. Both taxes would be completely eliminated after 2023. After 2023, the federal gift tax rate would be trimmed to 35% from its current level of 40%.

Action Items: What Should You Do Today?

While it appears that tax reform will materialize in some form or fashion, the plan unveiled by House Republicans represents only the first step in what could be a long, contentious legislative process. Tax reform is an ambitious undertaking and hasn’t been changed to the extent proposed here in more than 30 years.

The GOP’s bill now goes to the House Ways and Means Committee for markup, then to the entire House of Representatives for a vote. The Senate Finance Committee is also drafting its own tax reform legislation, but it is unclear how that proposal might differ from the House bill or when it might be formally introduced.

How Can You Prepare for the Changes that Might Be Coming in 2018?

In line with our traditional approach to tax planning, consider:

1. Postponing income. If possible, delay bonuses or commissions that might be taxed at a lower rate in 2018.

2. Accelerating any itemized deductions. Taking deductions this year may reduce your 2017 tax bill, especially if those deductions are not allowed in 2018. For example, if you expect to pay fourth quarter 2017 state income taxes in January, or a state tax balance due in April, consider pre-paying those amounts. But be mindful of the alternative minimum tax (AMT), which remains in effect this year.

3. Setting up or contributing to a donor advised fund. If you are looking to move charitable contributions you otherwise would make in 2018 into 2017, consider a donor advised fund. Contributing some or all of the additional income to a donor advised fund could allow you to take an immediate charitable deduction for the full amount, subject to income limitations, and provide you with the flexibility to make recommendations on how those funds should be distributed to charity in future years.

If you have questions about tax reform and how it might affect your estate plan, please reach out to your Fiduciary Trust representative. We will continue to monitor developments in Washington and provide more specific guidance as the process unfolds.

This communication is intended solely to provide general information. The information and opinions stated are as of November 8, 2017, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process.Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.