On Wednesday April 26, 2017, the Trump Administration revealed what they described as the “core principles” of the Presidents tax reform plan (the Plan).
The proposal would impact business and individual taxpayers.
- The highest corporate tax rate for C Corporations would drop to 15% from 35%. Also the top rate for pass-through businesses (S Corporations & Partnerships) would be reduced from 39.6% to 15%. During the election campaign, the Trump proposal was indicating a 10% tax was being considered.
- There would be a shift from a worldwide system of taxation to a territorial system. Under the current system, a US taxpayer is taxed on its worldwide income regardless of where the income is earned. Under a territorial system, the income would be taxed in the country where it is earned.
- A one-time tax on profits earned overseas by US corporations. No details were provided regarding what the rate would be.
Note: A shift from a worldwide system to a territorial system, would be the only true tax reform as it stands now. The other pieces of the proposal would be more along the lines of tax cuts.
While the details on the business plan are very general in nature, there were a few more details regarding individuals than businesses. For individuals,
- The current seven individual tax rates ranging from 10% to 39.6% would be whittled down to three: 10%, 25% and 35%. The rate structure is slightly different than what the Trump campaign was proposing during the election process. During the campaign, they were 12%, 25% and 33%. The campaign has not announced any details as to what amount of income would be needed to push you into a higher bracket.
- Double the standard deduction with intended result that less taxpayers would itemize on Schedule A.
- Most Schedule A deductions would be eliminated. The two exceptions would be mortgage interest and charitable contributions.
- Elimination of the alternative minimum tax (AMT).
- The 3.8% net investment income tax would be repealed (part of the Affordable Care Act).
- The estate tax (death tax) would be repealed
- There was no mention made regarding any changes to the gift tax.
The Plan as stated, did not include any proposals for raising revenue to offset the tax cut, which if enacted would increase the federal deficit substantially.
While some of these changes are consistent with the previously announced Republican plan, there is still much to be worked out before any legislation develops from the Plan.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.