President-Elect Donald J. Trump campaigned on the promise to lower and simplify taxes. On his website, President-Elect Trump includes his tax plan. The following is some of the proposed changes to the tax system as found on his website. Please note that some or all of the following changes may not ultimately be adopted into law.
- The current 7 tax brackets of 10%, 15%, 25%, 28%, 33%, 35% and 39.6% would be reduced to three brackets. Under President-Elect Trump’s proposal, the following tax rates would apply:
Filing Status 12% Rate 25% Rate 33% Rate
Single $0 to $37,500 $37,501 to $112,500 over $112,500
Married $0 to $75,000 $75,001 to $225,000 over $225,000
- The standard deduction would be increased to $30,000 for married-filing-joint (“MFJ”) taxpayers and $15,000 for single taxpayers. Currently for 2017, the standard deduction is $12,700 for married-filing-joint taxpayers and $6,350 for single taxpayers.
- Personal exemptions would be eliminated. The personal exemption for 2017 is $4,050 per exemption.
- The head-of-household status would be eliminated. Unmarried persons with children must file as single. This may result in higher taxes for some taxpayers.
- Itemized deductions would be capped at $200,000 for MFJ and $100,000 for single filers.
- The alternative minimum tax would be repealed.
- The federal estate tax would be repealed.
- Step-up in basis would be eliminated for estate over $10,000,000.
- An above the line deduction would be added for childcare expenses for children under the age of 13. The deduction would be limited to childcare for up to 4 children.
- The Obamacare Tax (3.8%) on net investment income would be eliminated.
- The current capital gain tax rates would not change. They would still be 0%, 15%, and 20%. However, the top 20% rate would apply once taxable income exceeds $112,500 for singles and $225,000 for MFJ taxpayers.
- Businesses operated as sole-proprietors and flow-throughs (partnerships and S corporations) would possibly be taxed at a higher rate (33%) than corporations (15%). Note that corporations would still be subject to double tax and as such the difference may not be that significant if distributions are being made to the shareholders.
Business Tax Provisions
- The tax rate on C corporations would be reduced from the current top rate of 35% to a flat rate of 15%. Currently, the first $50,000 of income earned by regular corporations is taxed at 15%. The remaining income is tax at higher rates.
- The proposal would eliminate the corporate alternative minimum tax. Currently, the AMT applies to corporations that do qualify as small corporations (gross receipts under $5 million for first 3 years and $7.5 million for others.)
- The proposal would add a new one-time 10% tax rate on repatriation of corporate profits.
- The proposal would eliminate most corporate tax expenditures except for the research and development (R&D) credit.
- Manufacturing firms could elect to immediately deduct capital investments if the corporation elects not to deduct interest.
- Businesses that pay a portion of an employee’s childcare expenses would be able to exclude those contributions from income.
- Multi-national companies would continue to be taxed upon world-wide income and not based upon income earned in the United States. This may still represent a disincentive to remain a US based corporation.