President-Elect Donald Trump’s Tax Proposals

The election is over. Many people have questions about the tax impact and implications of what proposals are being considered. This blog is to address some of what we know at this time.

Beginning January 20, 2017, the Republican Party will be in control of both houses of the U.S. Congress as well as the Presidency.  From experience, we know that just because one party has such a strong position, they may struggle to agree on details in various proposals or legislation; however, as of November 10, 2016, President-elect Trump’s Tax Plan website lists the following proposals:

For Individual Taxpayers:

1. Tax rates and breakpoints for Married-Joint filers would be:

         a.  Less than $75,000: 12%

 b. More than $75,000 but less than $225,000: 25%

         c.  More than $225,000: 33%;

2.  Brackets for single filers would be ½ of these amounts;

3.  “Low-income Americans [would] have an effective income tax rate of 0”;

4.  The existing capital gains rate structure (maximum rate of 20%) would be maintained, with tax brackets shown above;

5.  Carried interest would be taxed as ordinary income;

6.  The Affordable Care Act would be repealed; as part of this repeal, the 3.8% tax on investment income would be repealed;

7.  The alternative minimum tax (AMT) would be repealed;

8.  The standard deduction for joint filers would increase to $30,000, and the standard deduction for single filers would be $15,000;

9.  Personal exemptions would be eliminated;

10.  Head-of-household filing status would be eliminated;

11.  Itemized deductions would be capped at $200,000 for Married-Joint filers and $100,000 for Single filers;

12.  The estate tax would be repealed, but capital gains on property held until death and valued over $10 million would be subject to tax, with an exemption for small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be disallowed;

13.  There would be the following child care and elder care rules: 

• An above-the-line deduction for children under age 13 that would be capped at state average for age of child, and for elder care for a dependent. The exclusion would not be available to taxpayers with total income over $500,000 for Married-Joint or $250,000 for Single;
• Rebates for childcare expenses to certain low-income taxpayers through the Earned Income Tax Credit (EITC).  The rebate would be equal to 7.65% of remaining eligible childcare expenses, subject to a cap. This rebate would be available to married joint filers earning $62,400 ($31,200 for single taxpayers) or less;
• All taxpayers would be able to establish Dependent Care Savings Accounts (DCSAs) for the benefit of specific individuals, including unborn children. Total annual contributions to a DCSA would be limited to $2,000 per year from all sources. The government would provide a 50% match on parental contributions of up to $1,000 per year for these households.

For Business Taxpayers:

1.  The business tax rate would decrease from 35% to 15%;

2.   The corporate AMT would be eliminated;

3.    There would be a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%;

4.    “Most corporate tax expenditures,” except for the research and development credit, would be eliminated;

5.    Firms engaged in manufacturing in the U.S. could elect to expense capital investment and lose the deductibility of corporate interest expense. An election once made could only be revoked within the first three years of election; and

6.   The annual cap for the business tax credit for on-site childcare would be increased to $500,000 per year (up from $150,000), and the recapture period would be reduced to five years (down from ten years).

That is the current proposal information. It will take much more consideration and discussion and actual legislation to determine what actually is put in place.

Source:  2016 Thomson Reuters/Tax & Accounting RIA Checkpoint