On Wednesday, April 26th, President Trump’s administration revealed the core principles of his tax reform plan. This proposal still has a long way to go before it becomes the law of the land and the chance of it passing through Congress as presented is very small. The proposal is probably better described as a “first offer.”
Here is a summary of some of the key points for individuals:
- Pass-Through business income (S Corporations, Partnerships, & LLCs) would be taxed at 15%, down from a maximum of 43.4%.
- The current seven tax brackets would be reduced to three brackets: 10%, 15%, and 35%. This means the highest individual rate drops from 39.6% to 35%. However, where these brackets start and stop was not proposed.
- Double the standard deduction – the 2017 standard deduction is set to be $12,700 for married filing joint – it would increase to $25,400 based on this proposal, which means more income would be free of tax for those who do not otherwise itemize.
- The Alternative Minimum Tax (AMT) would be repealed. This 2nd tax system is impacting more and more individuals each year.
- The 3.8% Net Investment Income Tax (NIIT) would be repealed.
- The estate tax would be repealed (this would mean we would also lose the step-up in basis upon death)
- Some “tax breaks” would be repealed, including the deduction for state and local income/sales taxes. Sacred deductions would be kept, including home mortgage interest, charitable donations, and retirement savings.
Here is a summary of some of the key points for Corporations:
- The top tax rates for corporations would be 15%, down from 35%.
- There would be a one-time small repatriation tax to bring home offshore earnings.
- A shift from a worldwide tax system to a territorial one…
There was nothing in the proposal that discussed what revenue raising offset provisions, if any, would be included in order to make the proposal revenue neutral.
The administration has stated that itis determined to get tax reform passed before the end of 2017.