What’s in the Trump Tax Proposal

This week President Trump released a framework for potential tax reform with three general goals in mind: lower tax rates, simplify the tax code and create a more competitive business environment in the United States. The specific changes are all subject to negotiation as the proposed legislation works its way through congress, but as of September 27th, 2017, the proposed framework is outlined below.

Changes for individual taxpayers

Cut from 7 to 3 tax brackets: 12%, 25% and 35% (the highest rate is currently 39.6%). It has not been determined at which income levels these brackets would apply. The framework also leaves open the possibility of a fourth, higher tax bracket for those individuals deemed to be wealthy.

Increase the standard deduction: Proposal would increase standard deduction to $12,000 for individuals (up from $6,300) and $24,000 for couples filing jointly ($12,600 in 2016).

Eliminate most itemized deductions: Along with increasing the standard deduction, this proposal removes most itemized deductions including the deduction for state and local taxes , but retains deductibility of mortgage interest and charitable contributions.

Increase in child tax credit: The proposal aims to make the first $1,000 of the child tax credit refundable and increase the income level at which the credit is phased out.

Passthrough income taxed at a maximum of 25%: Rather than being taxed at the individual rate, small business owners would be taxed at 25% on the company’s income that has been passed through to them. This applies to S corporations, partnerships and sole proprietorships. There will likely be rules discussed to prevent “personal income” from being taxed at this preferred rate.

Repeal the Alternative Minimum Tax (AMT): This tax sets a floor on the minimum tax a taxpayer is required to pay after taking into account all deductions under the current tax law.

Eliminate the estate tax: This tax is currently paid on inherited assets over $5.49 million in 2017.

Changes for businesses

20% corporate tax rate: The current maximum corporate tax rate is 35%.

One-time repatriation tax: To encourage corporations to bring back accumulated earnings and assets from overseas to the United States, all cash returned would be taxed one time at a lower rate. Illiquid assets would be taxed at a different, but also lower rate than under the current code. The president has suggested 10%, down from the current 35% tax.

Elimination of certain deductions: This is left to the tax-writing committee’s discretion, but the plan currently calls for the limitation of interest deductions while maintaining the research and low-income housing credit. The framework calls for “streamlining” of business tax deductions.

100% expensing of depreciable assets for five years: This applies to all depreciable assets, except for buildings.

These items are currently only proposals, but Geeslin Group will be closely monitoring the legislative process as this reform moves through congress. If you have specific questions regarding your personal or business taxes, please contact Geeslin Group to see how we can help you.