The election of President Trump came as a surprise to the establishment and to many observers and prognosticators in the media. This surprise election result now means that individuals, business owners, and tax professionals must begin to plan for the changes to the U.S. Tax Code promised by the Trump team during the campaign. While there is still a number of moving pieces and uncertainty as the transition team moves into place, we can at least begin to envision what tax policy will look like under a Trump Administration.
Tax Reform After 30 Years of Stability?
Some predict that president-elect Trump plans to usher in a wholesale reform of the U.S. Tax Code. This prediction was made more likely by the Republican control of the House and Senate. While many have pointed to the tax plan announced by the Trump campaign as a starting point for analysis, others have stated that the plan has morphed and changed. Many now state that the current tax plan has a greater resemblance to the House Republican Tax Reform Blueprint announced in the weeks prior to the Republican Convention. If implemented, the provisions likely to be included in the plan would necessitate potentially drastic tax planning changes for both individuals and businesses.
Potential tax Planning Changes for Individuals
For individuals looking to the future, a number of the provisions would closely mirror those proposals set forth in the house plan. For instance, the Trump campaign announced that his tax plan would include tax rate decreases that match the House tax plan. This would result in just three tax brackets:
- 12 percent for married joint filers with taxable incomes below $75,000.
- 25 percent for married taxpayers with incomes between $75,000 and $225,000.
- 33 percent for married taxpayer income greater than $225,000.
The number of tax brackets would decrease, but the available standard deduction would increase to $30,000 for joint tax filers ($15,000 individually.) Individual taxpayers would have itemized deductions capped at $100,000 subject to doubling for married taxpayers filing jointly. Also, while the Trump tax plan is likely to keep the current 20 percent tax rate for capital gains, capital gains held until death and in amounts greater than $10 million would now be taxed. The Trump tax plan is also expected to contain provisions authorizing the establishment of a Dependent Care Savings Account with allowable annual contributions of up to $2,000 per year.
Tax Planning Changes for Businesses and Corporations
The Trump tax plan is expected to make certain drastic changes to the corporate and business tax rules. To start, the Trump tax plan would significantly decrease the corporate tax rate from its current rate of 35 percent to 15 percent. The Trump tax plan would eliminate the alternative minimum tax (AMT). These changes to the tax code are likely to result in the United States becoming a relatively low-rate jurisdiction. For businesses that have based their tax planning on the U.S. remaining a higher-rate jurisdiction, now is the time to reassess this approach. This is a particular concern wfor U.S. businesses engaging in crossborder business activities in Canada, Mexico, and other nations.
The Trump tax plan has also generally been thought to include an offshore tax on corporate profits. The tax plan would allow companies to repatriate offshore corporate income in exchange for paying a one-time tax at a rate of 10 percent. As part of its pursuit to eliminate loopholes and simplify the code, the Trump tax plan is also expected to eliminate most corporate tax credits and tax deductions. While the corporate tax deduction for interest and most other expenditures are expected to be eliminated, though, a version of the research tax credit is expected to be retained. These changes to the U.S. Tax Code may also necessitate a fundamental rethinking of an entity’s tax planning.
Consult with a Tax Professional to Prepare for 2017 Tax Reform
Most tax professionals and media observers expect the Trump administration to leverage their outsider status and introduce potentially sweeping changes to the U.S. Tax Code. Individuals and businesses who anticipate and prepare for these changes are likely to reap significant rewards in the form of tax savings. The tax professionals at the Tax Law Offices of David W. Klasing may be able to help. To schedule private, reduced-rate tax consultation with our tax law team, call 800-681-1295 today.
