What will President-elect’s tax plan mean for your business and on an individual household level? BB takes a closer look at what the first 100 days of the Trump Presidency (and beyond) may imply for your plans ahead.
On The Business Front:
- A 20% reduction of the corporate tax rate
President-elect Trump has described a number of proposals in broad terms, among them a proposed reduction of the corporate tax rate from its current point of 35% to 15%.
In addition, Trump has proposed tax simplification for small business owners along with an increase in Code Sec. 179 expensing to $1 million. He’s also called for an immediate deduction of all new investments in a business.
- S Corporations, LLCs, Partnerships, etc.
Trump’s campaign materials about how pass-through entities (sole proprietor-ships, partnerships, and S corporations) would be taxed are broad-brush. Generally, Trump’s campaign materials indicate that the owners of pass-through entities could elect to be taxed at a flat rate of 15 percent on their pass-through income retained within the business, rather than be taxed under regular individual income tax rates (the top individual rate would be 33 percent under Trump’s plan).
This plan would appear to give a business quasi-corporate status in being able to be taxed at a new 15 percent corporate tax rate until assets are distributed. Upon distribution, a second layer of tax would be imposed similar to dividends now taxed to C Corporation shareholders.
- Repeal of the Patient Protection and Affordable Care Act
A promise made along the campaign trail, President-elect Trump has vowed to repeal the Affordable Care Act (or “Obamacare”), including the Health Insurance Marketplaces, the SHOP Marketplace, tax credits for small employers, the premium assistance tax credit and reporting requirements for employers and insurers.
Will a repeal pass? Call this move easier said than done at least without some concessions made. Although Republicans control both houses of Congress, it will still be very difficult to move a repeal bill through the Senate, especially if there is no suitable replacement.
- Foreign Subsidiaries
President-elect Trump has floated the idea of a one-time reduced rate would also be available to encourage companies to repatriate earnings of foreign subsidiaries that are held offshore.
- Consolidating seven individual income tax rates into three
The last change to the individual income tax rates was the American Taxpayer Relief Act of 2012 (ATRA), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6%. President-elect Trump has proposed the following new rate structure, taking seven tax structures into three:
- Current rates of 10% and 15% = 12% under new rate structure
- Current rates of 25% and 28% = 25% under new rate structure
- Current rates of 33%, 35% and 39.6% = 33% under new rate structure
During the campaign, President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12% rate on income up to $75,000; a 25% rate for income between $75,000 and $225,000; and 33% on income more than $225,000 (brackets for single filers will be half those dollar amounts). “Low-income Americans” would have a 0% rate.
Closely-related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed percent income tax bracket levels.
Will it pass? Whether or not this brand of tax reform becomes reality remains to be seen. Plan on it being hotly debated in the House between Democrats and Republicans.
- An increase in the standard deduction for singles and married couples
Under Trump’s plan, the standard deduction would be increased to $15,000 for single individuals and $30,000 for married couples filing a joint return. For itemizers, Trump has proposed capping itemized deductions at $100,000 for single individuals and $200,000 for married couples filing a joint return.
Problems for large families and single parents? According to the nonpartisan Tax Policy Center’s (TPC) analysis, increasing the standard deduction would reduce the number of itemized deductions currently taken by taxpayers. “Twenty-seven million (60 percent) of the 45-million filers who would otherwise itemize in 2017 would opt for the standard deduction,” the TPC estimates. “Repealing personal exemptions and the head-of-household filing status, however, would cause many large families and single parents to face tax increases.”
- Tax incentives for caregivers, certain families for childcare expenses
The President-elect has proposed several new tax incentives, from Dependent CARE Savings Accounts (DCSAs) to “spending rebates” to lower-income families for childcare expenses.
Encouraging signs: There could be significant movement in this area, as there are a variety of related measures in Congress that have been introduced on both sides of the aisle, including the Americans Giving Care to Elders bill, a measure that would amend the Code to give caregivers a tax credit of up to $6,000 of the caregiver expenses incurred for their parents (or ancestors of such parents).
- Repeal of the federal estate and gift tax
The federal estate and gift tax currently starts for estates valued at $5.49 million for 2017 (essentially double at $10.98 million for married individuals). Trump, however, also proposed a “carryover basis” rule for inherited stock and other assets from estates of more than $10 million.
Will it pass? This proposal has already faced criticism from all sides, including some Republican members of Congress and Democrats who have labeled repeal of the federal estate tax as a non-starter.
For individuals and businesses alike, President-elect Trump has also put these tax-related proposals on the table:
- American Energy & Infrastructure Act
A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”
- Repeal of the Alternative Minimum Tax (AMT)
The last time that Congress visited the AMT, lawmakers voted to retain the tax but to provide for inflation-adjusted exemption amounts.
- Elimination of the head-of-household filing status
- Elimination of all personal exemptions
What Comes Next? A Conversation with Bronswick Benjamin.
It’s difficult to know for certain at this point which tax proposals from a Trump administration will pass – because while it would be tempting to say that many will move forward with a Republican-controlled House and Senate, it’s important to remember that Senate Democrats could filibuster to prevent the passage of certain tax bills with fewer than 60 votes. Compromise is essential – including between Trump and his own party. Will that come in the form of one tax bill at a time or a package in order to push tax reform through?
That’s why it’s good to schedule a meeting in the 1st quarter with Bronswick Benjamin. Besides keeping you abreast of the newest details on tax proposals that may affect your business and you personally, we’ll be able to plan in a customized fashion around your goals – many of which that surely extend beyond 100 days.
To schedule that meeting with BB, call us today at 847.808.9800 or call or email your representative directly.
Source: CCH Tax Briefings November 2016
Disclaimer: The information contained in this Blog (the “Blog”) is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will BB, or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Blog or for any consequential, special or similar damages, even if advised of the possibility of such damages.