President Donald Trump and his administration have released their proposed tax plan. The plan, which was released earlier this year on April 26th, was announced by Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn and states the following four goals:
1. Grow the economy and create millions of jobs
2. Simplify the burdensome tax code
3. Provide tax relief to American families, specifically middle-income families
4. Lower the business tax rate to one of the lowest in the world
The proposal is targeted at both individual and business reform. It contains broad outlines that President Trump and his administration want to address. Below are the key points from the proposed tax plan:
– Adjustment to individual tax rates: Reduce the current 7-bracket tax system to a 3-bracket tax system with rates of 35%, 25%, and 10% to simplify the current tax code and provide tax relief to middle-income families.
– Doubling of the standard individual tax deduction: Standard individual tax deduction would increase to $12,700 for those filing single and $24,500 for those filing jointly, up from the current $6,350 and $12,700, respectively, to provide tax relief to middle-income families.
– Repeal the alternative minimum tax: Further simplifying the tax code, this would eliminate the need for those with a high number of deductions to compute their income tax return under the normal tax rate and the alternative and pay the higher of the two.
– Corporate tax rate of 15%: The corporate tax rate would drop from the current federal statutory rate of 35% to 15%, to allow businesses to retain more profits.
– Allow pass-through rate for business owners: Self-owned businesses would have incomes from operations taxed at the 15% rate rather than the owners’ personal income rate.
– One-time repatriation tax: Companies can bring back money from overseas to the US for a slightly lower, one-time tax to facilitate economic growth and the creation of jobs
– Elimination of estate tax: Eliminate the tax currently assessed on assets being transferred through a will.
– Elimination of itemized tax deductions: While continuing the use of deductions for charitable donations and mortgage payments, President Trump wants to eliminate most of the other itemized tax deductions commonly used by the wealthy.
– Repeal a 3.8% tax on net investment income: Eliminate taxes levied on “individuals, estates, and trusts” with investment incomes higher than certain thresholds to further simplify the tax code.
As you can see, the released plan is void of many specifics, including the income levels associated with the new three-bracket tax system and the tax rate for the one-time repatriation of corporate profits held overseas. There is also ambiguity as to which self-owned businesses (LLC’s, S-Corp, C-Corp, etc.) would be eligible for the pass-through tax rate. As this process moves further along, more details will emerge regarding the specifics of the plan and we will have a better idea of President Trump’s tax reform in its entirety.
As always, if you have any questions pertaining to your specific circumstance please do not hesitate to give us a call.