On September 27, 2017, President Trump unveiled his proposal for the changes in the tax law. Below you will find a breakdown of the major provisions:
- Reduce Corporate Tax Rate from 35% to 20% – Large corporations will see the most benefit from this provision.
- Individual Tax Rates
- Reduce and consolidate the individual tax rates into three brackets: 12%, 25% and 35% – There is a possibility of a fourth, higher bracket on the highest-income taxpayers. However, it has not been determined at this time. Rates currently consist of seven brackets ranging from 10% to 39.6%.
- Nearly Double the Standard Deduction – The Individual deduction would increase from $6,350 to $12,000 and the deduction for Married couples filing jointly would increase from $12,700 to $24,000. This will create a larger zero percent tax rate on the nation’s lowest earners.
- Eliminate the personal exemption – This elimination is in conjunction with the increased standard deduction.
- Reduce the tax on pass-through businesses to 25% instead of being taxed at the individual rate – This is an area where there is potential for large savings and tax planning. Currently, individuals taxpayers in the highest tax rate are paying taxes at 39.6% on their pass-through income.
- Elimination of the Individual Alternative Minimum Tax – This will affect many taxpayers in the middle class that are currently subject to AMT.
- Elimination of the Estate Tax – Currently the estate tax applies to estates valued at $5.49 million or higher.
- Allow full expensing of business assets for up to five years – This is an area where contractors may be able to take advantage of large tax savings with the immediate expensing of depreciable assets.
- Repeal all itemized deductions other than mortgage interest and charitable contributions – This is one of the areas that the plan is looking at to help pay for the tax cuts above. Since taxpayers would be losing the deduction for real estate taxes and state and local taxes, this is an area that may affect high income taxpayers.
There are still hurdles to cross before legislative passes the law but this gives us an idea of the options we will have to save taxes in the future.
If you have any questions regarding these proposed changes, don’t hesitate to contact our office.