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Trump’s Proposed Tax Reforms Could Mean Big Changes For Individuals And Businesses

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With the election now behind us, we wanted to share President-elect Trump’s tax reform proposals for both individuals and businesses. Keep in mind that any changes in the current tax system would have to be voted on by Congress, however, here are some potential changes that could become law in 2017.

For individual taxpayers:

  • Tax rates and breakpoints for Married-Joint filers would be:
    • Less than $75,000: 12%
    • More than $75,000 but less than $225,000: 25%
    • More than $225,000: 33%
  • Brackets for Single filers would be half of these amounts.

The existing capital gains rate structure would be maintained with the maximum rate of 20%, and the tax brackets shown above. In addition, carried interest would be taxed as ordinary income.

The standard deduction for joint filers would increase to $30,000, and for single filers would be $15,000. Itemized deductions would be capped at $200,000 for Married-Joint filers and $100,000 for Single filers.

There are also some repeals and eliminations that may occur in 2017. The Affordable Care Act and the related 3.8% tax on investment income could be repealed, as well as the alternative minimum tax (AMT) and personal exemptions. The head-of-household filing status may be eliminated.

The estate tax could also get repealed, but capital gains on property held until death and valued over $10 million would be subject to tax, with an exemption for small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be disallowed.

Child and elder care rules are subject to change as well. Trump’s proposed changes to these rules are:

  • An above-the-line deduction for children under age 13, which would be capped at the state average for age of child, and for elder care of a dependent. This exclusion would not be available to taxpayers with total income over $500,000 for Married-Joint or $250,000 for Single filers.
  • Rebates for child care expenses to certain low-income taxpayers through the Earned Income Tax Credit (EITC). The rebate would be equal to 7.65% of remaining eligible child care expenses, subject to a cap. This rebate would be available to Married-Joint filers earning $62,400 ($31,200 for single taxpayers) or less.
  • All taxpayers would be able to establish Dependent Care Savings Accounts (DCSAs) for the benefit of specific individuals, including unborn children. Total annual contributions to a DCSA would be limited to $2,000 per year from all sources. The government would provide a 50% match on parental contributions of up to $1,000 per year for these households.

For business taxpayers, the tax rate would decrease from 35% to 15%, which also would apply to pass-through business income, as well as sole proprietorships. Furthermore, there would be a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%.

The corporate AMT and “most corporate tax expenditures,” except for the research and development credit, would be eliminated.

Firms engaged in manufacturing in the United States could elect to expense capital investment and lose the deductibility of corporate interest expense. An election, once made, could only be revoked within the first three years of election.

Additionally, the annual cap of the business tax credit for on-site child care would be increased to $500,000 per year (up from $150,000), and the recapture period would be reduced to five years (down from ten years).

If you need assistance understanding how these changes might affect you or your business, please don’t hesitate to contact me at ewhelan@mercadien.com or 609-689-9700.

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