Tax Policies Likely to Change in Next Few Years
As a result of the election last month, you will likely see some significant changes in the future of tax policy. With Republican President-Elect Donald Trump and the Republicans controlling both the House and Senate, the political dynamic will make it easier to move legislation through both houses. In fact, the House tax plan mirrors President-Elect Trump’s plan.
This article is not an analysis of how Trump’s tax plan will impact the economy and/or who benefits from his plan. There are differentiating opinions on this topic.
Politics aside – we want to bring the details outlined in his plan. Whether you are an individual or business, there are significant changes to watch and understand!
Let us know if you have any questions. We are happy to help.
THE TRUMP PLAN − INDIVIDUALS
Tax Rate Changes
- Reduces the current seven tax brackets to three, with rates on ordinary income of 12 percent (below $75,000), 25 percent (between $75,000-$225,00), and 33 percent above that (See below tables for Trump’s Plan and Current Plan).
- Eliminates the head of household filing status.
- Increases the standard deduction for joint filers to $30,000 from $12,600. The standard deduction for single filers will be $15,000.
- Eliminates personal exemptions.
- Caps Itemized deductions at $200,000 for joint filers and $100,000 for single filers.
- Enables taxpayers to take an above-the-line deduction for children under age 13 that will be capped by the state average for age of child, and for eldercare for a dependent. The exclusion will not be available to taxpayers with total income over $500,000 married-joint and $250,000 single.
- Offers spending rebates for childcare expenses to certain low-income taxpayers through the Earned Income Tax Credit (EITC).
No More Estate Taxes (with some exceptions)
- Repeals the estate and generation-skipping taxes. However, it would tax capital gains held until death and valued at over $10 million. Under current law, if you die with an estate valued more than $5.45 million; you pay a tax of 40% on the excess value. Trump’s plan would likely exempt small businesses and family farms from the estate tax.
- Changes to appreciated assets. Contributions of appreciated assets into a private charity established by the decedent will not be recognized.
Changes in Capital Gains
- Retains the current system for taxing capital gains with a maximum rate of 20 percent. Carried interest would be taxed as ordinary income.
- Establishes a Dependent Care Savings Account with allowable annual contributions of up to $2,000 per year and would create new benefits for families with children with joint incomes under $500,000 (individuals with children under $250,000).
- Repeals the 3.8 percent tax on net investment income that was enacted as part of the Affordable Care Act.
THE TRUMP PLAN − Businesses
- Reduces the corporate income tax rate from 35 percent to 15 percent.
- Eliminates the corporate alternative minimum tax.
- Allows firms engaged in manufacturing in the U.S. to choose between the full expensing of capital investment and the deductibility of interest paid.
- Eliminates most corporate tax expenditures with some exceptions (i.e research tax credit is retained.) Manufacturers would be allowed to expense capital investments. The corporate deduction for interest would be eliminated.
- Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
- Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 10 percent.
- Increases the cap for the tax credit for employer-provided day care under Sec. 205 of the Economic Growth and Tax Relief Reconciliation Act of 2001 from $150,000 to $500,000 and reduces its recapture period from 10 years to 5.
Sources
Cole, Alan. “Details and Analysis of the Donald Trump Tax Reform Plan, September 2016.” Tax Foundation. N.p., 19 Sept. 2016. Web. 15 Nov. 2016.
Migdail, Evan, and Steven Phillips. “The Trump Tax Reform Plan – Key Points.” DLA Piper. N.p., 10 Nov. 2016. Web. 15 Nov. 2016.
Nitti, Tony. “President Trump: What Does It Mean For Your Tax Bill?” Forbes. N.p., 09 Nov. 2016. Web. 15 Nov. 2016.
“Tax Plan.” Make America Great Again! N.p., n.d. Web. 15 Nov. 2016.
