Tax reform: What can you expect next?
What will potential tax reform mean to you? With tax legislation being a hot topic on Capitol Hill, we’re here to help you sort through the rumors to understand what could happen next.
What is tax reform?
Tax reform is legislative action to rewrite the tax code—how the federal government collects money through taxes from people and businesses to pay for government services (such as military defense, Medicare and Social Security, etc).
Tax rules and regulations are updated frequently, but there hasn’t been a thorough overhaul of the tax code since 1986. A tax reform bill is currently being worked on in the House of Representatives as a result of:
- Campaign promises
- Party and political interests
- Expectations that such a bill could successfully pass
How tax reform happens.
Cutting taxes will likely be a big part of tax reform, which reduces revenue that pays for federal programs and services. Tax reform legislation will offer ways to balance cuts and expenses by taking from some areas and giving to others.
What a tax reform bill could mean for you.
It’s still too soon to know the effects of any tax reform, since no bill has been presented yet. However, reports indicate there could be potential changes to how 401(k) and other defined contribution (DC) plan contributions are taxed. Lawmakers are exploring this option because changing DC plan contributions from pre-tax to after-tax, in part or in totality, raises revenue in the short-term to help offset tax cuts.
We understand how important potential changes could be to your financial future and Principal® is closely watching the situation.
On November 2, a proposed tax bill was revealed by the House Republicans that would make sweeping changes to both business and individual tax rules. Check out our breakdown on some of the proposed changes and what the next steps for the bill are.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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