Possible Trump Administration Tax Changes

Any change in Presidential Administration brings the possibility of tax law changes, and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses. Keep in mind that a candidate’s proposals can, and often do, change over the course of a campaign and also after taking office. This letter is based on general tax proposals made by the President-elect during the campaign and is intended to give a broad-brush snapshot of those proposals.

CAMPAIGN PROPOSALS

Some of the more significant Trump proposals include:

  • Lowering the number of individual income tax rate brackets and eliminating the top two brackets (rates of 12%, 25% & 33 proposed).
  • Repealing the Affordable Care Act (aka Obamacare), which if fully repealed would result in the elimination of the 3.8% Net Investment Income Tax and the 0.9% Additional Medicare Tax.
  • Repealing the alternative minimum tax (AMT).
  • Substantially increasing the standard deduction while reducing or eliminating some of the current itemized deductions.
  • Repealing the federal estate tax.
  • Lowering the corporate tax rate to 15%.
  • Increasing the Code Sec. 179 small business expensing election to $1 million.

Many of Trump’s proposals are similar to ones proposed by House Republicans earlier this year. The following chart is a side-by-side comparison of the tax positions taken by President-elect Donald Trump and the House Republican Blueprint for Tax Reform, which was released in June 2016 by House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chair Kevin Brady (R-TX). Many speculate that the tax bill introduced will be a compromise between these two proposals.

SIDE-BY-SIDE, TRUMP TAX POSITIONS AND HOUSE REPUBLICAN BLUEPRINT 

TRUMP

HOUSE GOP

Top corporate tax rate (now 35%) 15%, corporate AMT eliminated 20%, corporate AMT eliminated
Top pass-through rate (now 39.6%) 15% rate within the personal income tax system for pass-through entities that want to retain profits within the business 25%
Cost recovery Expensing for manufacturers 100% expensing of tangible, intangible assets
Other business provisions Calls for them to generally be eliminated, except for research credit Calls for them to generally be eliminated, except for research credit and LIFO
Individual rates (now 10%, 15%, 25%, 28%, 33%, 35%, 39.6%) 12%, 25%, 33% 12%, 25%, 33%
Capital gains -Existing capital gains rate structure (maximum rate of 20%)

-3.8% Net Investment Income Tax (NIIT) repealed

50% deduction for capital gains, dividends, and interest, leading to basic rates of 6%, 12.5%, and 16.5%
Dividends Existing rates but NIIT repealed
Carried interest Ordinary income (Not addressed)
Estate tax (now 40% rate, $5.45 million exemption) Repealed, but capital gains held until death will be subject to tax, with the first $10 million tax-free Repealed
State tax deduction Cap itemized deductions at $100,000 for single filers and $200,000 for couples Eliminated
Charitable contribution deduction Retained, but could be modified
Mortgage Interest deduction Retained, but could be modified
Dependent care expenses – Deduction for care expenses, up to 4 children, elderly dependents, capped at the average cost of care for state of residence

– Available to those earning $250,000 per year or less for individuals, $500,000 couples

– Child credit and personal exemptions for dependents consolidated into an increased child credit of $1,500

– First $1,000 will be refundable as under current law

– Non-refundable credit of $500 also will be allowed for non-child dependents

Personal Exemption Phase-out (PEP), and Pease limitation on itemized deductions (now apply for families with income over $311,300, individuals over $259,400) Unspecified “steepening the curve” of PEP and Pease (Not addressed)
Personal AMT Eliminated Eliminated

Considering that these numerous and varying proposals are only possibilities, the only conclusion we can make at this time is that there will be changes. As you plan for 2016 year-end and 2017, it is important to be aware of the proposed changes and the general direction of these changes. For example, it is anticipated that ordinary income tax rates will be reduced in 2017, as such you may want to consider accelerating deductions into 2016 or deferring income into 2017. However, there are consequences of these two actions on 2016 Alternative Minimum Tax (AMT). If you would like to explore these possibilities in greater detail and calculate any possible benefits please contact our office.

As always, we are here for any questions you may have and will be in touch as things develop.

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