At the end of April, the Trump Administration issued an outline of proposed tax reform and changes they would like to implement in the coming months.
Known as the 2017 Tax Reform for Economic Growth and American Jobs, it is advertised as the largest tax cut for individuals and businesses in American history. The goal of the proposal and corresponding tax reform is to simplify the complex and burdensome tax code, provide tax relief to individual taxpayers – including middle income families – and transform the U.S. business tax rate from one of the highest to one of the lowest in the world. Not surprisingly, the tax proposal is closely aligned with other tax reform and plans issued by the President. To help clients and prospects become familiar with the latest proposal, Hanson & Co has provided a summary overview below.
Key Highlights from President’s Tax Proposal
Individual Tax Rates – The proposal calls for the replacement of the six tier income tax brackets for individuals which peaks out at 39.6% and replaces it with a three-bracket range. This includes a 10%, 25% and 35% level depending on the individual’s income and other factors. As of the release of the proposal there was no information given on corresponding income brackets for the new tax rates.
Corporate Tax Rates – The proposal calls for an across the board reduction of corporate taxes from the current tax rate (which can be as high as 35% on some businesses) to 15% for all companies regardless of entity or structure. This will have a significant impact on small businesses including pass through entities, S-Corporations and sole proprietors who currently pay taxes at the individual tax rate, which peaks at 39.6% based on income.
Taxes on Overseas Income – Rather than leveraging the complex tax rules and regulations to tax overseas income, the President’s tax proposal suggests a low, one time tax on all overseas income earned by U.S. companies and individuals.
Elimination of Deductions – The proposal calls for the elimination of almost every tax deduction available under the existing tax structure. There are a few notable exceptions including the mortgage interest deduction and the charitable contribution deduction.
Standard Deduction – There would be a doubling in the size of the standard deduction available to taxpayers. This is less than what the President offered during his campaign and in his initial tax blueprint.
Select Tax Repeals – Beyond changing tax rates and eliminating deductions, the proposal also called for the repeal of several taxes created during the Obama administration. These include the Alternative Minimum Tax (AMT), estate tax and the 3.8% Medicare surtax that is imposed on qualifying employee wages. The President believes AMT is needlessly complex and is not needed as part of the tax system.
The President’s tax proposal provides important insights into the administration’s objectives for tax reform over the coming years. It’s important to note that no changes can be made to the tax code without the approval of Congress, so these changes will likely not go into effect in their current form. However, it does provide insight into how taxes may change over the coming years. If you have questions about the proposal or are interested in discussing tax planning, Hanson & Co is here to 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.