September 29, 2017
Tax reform, one of President Trump’s key legislative agenda items, is moving closer to fruition. Based on the outline of his proposed tax reform package, which he unveiled on September 27, 2017, we’ve compiled this brief overview of the President’s major tax proposals:
Individual tax changes:
- There would be only three tax brackets including one at 12%, one at 25% and one at 35%. Legislators would have the option of adding a fourth bracket as a safeguard should wealthy taxpayers be in the position to pay less than they do in the current system.
- The standard deduction would be doubled to $24,000 for married couples and $12,000 for single filers.
- Personal exemptions would be eliminated. In addition, many itemized deductions would be eliminated or modified with the exception of mortgage interest and charitable contribution deductions.
- The proposal encourages lawmakers to keep tax incentives for home ownership, retirement savings, charitable giving and higher education.
- The child tax credit would be significantly increased from the current $1,000 per child under 17 years of age.
- The estate tax and the alternative minimum tax (AMT) would be eliminated.
Business tax changes:
- The C-corporation tax rate would be lowered from 35% to 20%. The deduction for net interest expense incurred by C-corporations will be partially limited.
- Sole proprietors, partnerships and S-corporations would have a maximum tax rate of 25%. Measures will also be implemented to prevent wealthy taxpayers from avoiding the top personal tax rate by re-characterizing their personal income as business income.
- A one-time low tax rate on existing overseas profits will be offered to companies in an attempt to have them move corporate money back to the United States.
- Future international earnings will not be taxed by the United States when paid as dividends from a foreign subsidiary if the U.S. parent company owns at least a 10% stake in the foreign subsidiary.
- A lower tax rate will be implemented on the foreign profits U.S. multinational companies to discourage them from sheltering profits in overseas tax havens.
- The proposal allows for the immediate expensing of the cost of new investments in depreciable assets, other than structures, that are made after September 27, 2017.
- The Section 199 production deduction will be eliminated based on the premise that it is no longer necessary in light of the lower corporate and individual income tax rates.
- The research and development credit and low income housing credits will be retained.
If you have any questions about these potential changes to the tax code and how they may impact your tax situation or your business, please contact us.