President-Elect Trump’s Tax Plan
The results of the 2016 election are settled and the President-Elect is Donald Trump.
While most are aware of this fact, it’s also important to note that the Republican Party will soon have a majority in Congress. This is important because it means that changes in various policies including tax policies are expected. Although it will likely be sometime before any changes are implemented, it’s essential to be aware of the President-Elect’s tax vision for the future. Not only will this allow individuals and businesses the opportunity to take advantage of incentives and credits, but also identify future opportunities. To help clients, prospects and others understand the President-Elect’s plan, Hanson & Co., has provided a summary of key points below.
Individual Tax Changes
Below are highlights of the Trump Tax Plan that will impact individual taxpayers.
- Reduction of Income Tax Rates – There will be a reduction of ordinary federal income tax brackets from 7 with a top rate of 39.6% to three income tax brackets with a top rate of 33%.
- Head of Household – This filing status for qualifying taxpayers will be eliminated.
- Elimination of the Personal Exemption – The personal exemption is an automatic exemption that an individual taxpayer is allowed to take for each person listed on the tax return. In 2015 the personal exemption was $4,000 per person and $8,000 per couple. Under the Trump Tax Plan the personal exemption will be eliminated.
- Limiting Itemized Deductions – There would be a limit on the amount of itemized deductions an individual taxpayer can claim. Under the plan, single taxpayers would be allowed to take up to $100,000 in itemized deductions and a couple would be permitted to take $200,000.
- Standard Deduction – The standard deduction is a flat amount a taxpayer can deduct if they elect not to itemize deductions. Under the Trump Tax Plan the standard deduction amount would more than double from the current rate of $6,300 for individual taxpayers to $15,000 and from $12,600 to $30,000 for married couples filing jointly.
- Estate & Gift Tax – These taxes would both be eliminated, but step-up basis for estates of $10M and higher would not be permitted.
- Tax Elimination – There would be an elimination of several taxes including the net investment income tax, alternative minimum tax and the additional Medicare tax. There would also be changes to other taxes such as the child care and dependent tax credit would transition to a deduction as a percentage of Adjusted Gross Income (AGI).
Business Tax Changes
Below are highlights of the Trump Tax Plan that will impact business taxpayers.
- Reduction of Tax Rates – Like the individual tax rates, the President-Elect’s plan would also reduce corporate tax rates as well. Currently there is a top rate of 35% but under Trump’s plan the top rate would be significantly reduce to 15%.
- Alternative Minimum Tax – Under the new plan this tax structure for business taxpayers would be eliminated.
- Tax Benefit Elimination – There are many current tax deductions/credits which would be eliminated under the new plan, which includes ALL business deduction and credits including the domestic production activities deduction (Section 199) except for the research and development (R&D) tax credit.
- Un-Repatriated Earnings – A significant change in how repatriated earnings would be taxed when brought back to the United States. Currently there is a 35% corporate tax imposed when earnings are brought back to the US. Under the new plan, the higher tax rate would be eliminated and replaced with a 10% tax on repatriated income.
- Capital Investments – Under existing tax regulations capital investments in property and other assets are required to be capitalized and depreciated over a span of several years. However, under the new plan certain companies such as manufacturing companies would have the option to expense such deductions (resulting in an immediate tax benefit).
- Childcare Deductions – There would be a significant increase in the deduction amount for employer provided daycare. Under existing regulations the cap is $150,000 but under the new plan it would be increased to $500,000.
It’s clear there are many significant changes to the tax structure under the Trump Tax Plan. While it’s unlikely all the changes will pass Congress without changes, it’s possible that 2016 may be the last year to leverage key tax benefits. If you have questions about how these changes may impact your business or individual tax situation, Hanson & Co. can help. For additional information, please call us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.