President Trump recently unveiled the "2017 Tax Reform for Economic Growth and American Jobs", which calls for tax cuts and simplification for both individuals and businesses. Currently, the plan contains broad principles, with specific details to be determined in the coming weeks.
While we wait for the details to be finalized, I've summarized the major changes outlined in the current proposed plan. Here are the top 10 things you should know:
Your Tax Bracket Might Change.
The President has proposed a new, three-bracket tax range for individuals. Currently, individuals fall into 7 brackets—10, 15, 25, 28, 33, 35, and 39.6 percent. Under the proposal, new tax brackets would be 10, 25, and 35 percent. However, income brackets for the new rates have not been determined yet.
Your Standard Deduction Might Double...
The President has proposed doubling the standard deduction, hoping to simplify tax filing by reducing the number of taxpayers who would otherwise itemize their deductions. Current standard deductions are $6,350 for single filers and $12,700 for married filing jointly.
...But You Might Get Fewer Deductions.
The President's Plan includes eliminating all individual tax deductions, except for the mortgage interest deduction, and the charitable contribution deduction.
If You Have a Family, You Might Get More Tax Relief.
Although no details were specified, the President's plan calls for an increase in tax relief for families with child and dependent care expenses.
Estate Tax May Be Eliminated.
The President has proposed eliminating the Federal Estate Tax, which is currently at a maximum of 40 percent with an inflation-adjusted $5.49 million exclusion. This would be a change at the Federal level only. Existing state regulations are not affected by this proposal.
The Net Investment Income Tax May Be Repealed.
The President has proposed to repeal the Net Investment Income Tax, which currently imposes a 3.8 percent tax on certain investment income of higher income tax payers.
The Alternative Minimum Tax May Be Eliminated.
The President has proposed to abolish the Alternative Minimum Tax, which is an alternative tax structure designed to ensure that individuals, estates, and trusts with substantial income do not avoid tax liability. The President believes it is a complicated, unnecessary addition to the tax system, which forces many individuals to calculate their taxes a second time, then pay whichever method results in a higher amount.
Corporate Taxes May Decrease.
The President has proposed a 15 percent corporate tax rate, one of the most aggressive tax changes within his plan. The current maximum tax rate is 35 percent.
If You Own a Small Business, Your Tax Rates May Decrease...
Owners of S Corporations, Partnerships, and Sole Proprietorships currently pay tax at the individual rates, the highest of which is currently 39.6 percent. Under the new plan, the President has proposed that small businesses now pay the corporate tax rate of 15 percent.
...But You May Have to Pay Additional Taxes.
Although the President's plan would reduce the taxes paid by small businesses and pass-through entities, his campaign material has indicated that a second layer of tax would be imposed once assets are distributed.
Trump's tax proposal also covers some international tax issues, such as instituting a one-time tax on repatriated profits being held overseas, and moving to a territorial tax regime instead of a worldwide tax regime. The plan leaves out a few areas too—like bonus depreciation, small business expensing, business credits (including the popular research and development credit), energy tax incentives, spending and tax incentives for infrastructure, and the controversial "border tax" previously discussed in his campaign.
Currently, these proposed changes are just that—proposals. No legislative language has been determined yet. However, Administration officials predict that these tax reform changes will be finalized and go into effect sometime this year.
Questions about how these changes will affect you or your business? Leave a comment below, or contact me directly anytime.