On April 26, 2017, President Donald J. Trump and his Administration unveiled their proposed changes to the tax code.  Here are the most important items you need to know:

  • CORPORATE & PASS-THROUGH TAX RATE – The proposed plans would reduce the corporate rate from 35% to 15%. This reduced corporate rate of 15% would also apply to pass-through entities as well.
  • CORPORATE REPATRIATION – A one-time tax for businesses that bring their dollars held overseas back to the U.S.
  • INDIVIDUAL TAX BRACKETS – The number of tax brackets for individuals would be reduced from seven to three (10%, 25% and 35%). Dropping the top individual rate from 39.6% to 35%.
  • REPEAL ALTERNATIVE MINIMUM TAX – The AMT tax operates as a parallel tax system alongside the regular income tax system and requires many taxpayers to calculate their tax liability twice, and then pay the higher amount. The proposed changes would completely eliminate AMT tax.
  • DOUBLE THE STANDARD DEDUCTION – Currently the 2017 Standard Deduction is at $6,350 for individuals and $12,700 for married filing joint. The new proposal plans will double the standard deduction ($24,000 for MFJ).
    • This plan would ultimately mean that a married couple won’t pay any taxes on the first $24,000 of income they earn. Also, simplifying the individual side since fewer Americans will need to itemize.
      • About 70% of Americans currently taking the standard deduction would benefit.
      • And the remaining 30% that do itemize, would likely switch to the standard deduction, leaving about 5% of Americans to itemize.
    • ITEMIZED DEDUCTIONS – Proposed changes would do away with itemized deductions, except for the mortgage interest and charitable contribution deduction. This is concerning for those individuals living in high-tax states like New York, New Jersey, California, etc. since the state and local tax deduction would be eliminated.
    • REPEAL THE NET INVESTMENT INCOME TAX – Also known as the “Obamacare tax,” the proposed changes would eliminate the additional 3.8% tax on certain investment income
    • REPEAL THE ESTATE TAX – Also known as the “death tax,” the proposed changes would eliminate the estate tax, which is currently a 40% tax on certain estates.

Note the above proposals are merely high level. As each detail of the plan becomes clearer, there will be more and more challenges and hurdles before any change is made final.

Lastly, here are some fun facts about our current U.S. tax code [1].

  • In 1935, the U.S. had a one-page tax form consisting of 34 lines with two pages of instructions.
  • Today, an individual 1040 has 79 lines and 211 pages of instructions. Instead of a one-page tax form, the IRS now has 199 tax forms on the individual side alone.
  • Since 2001, the U.S. tax code has faced nearly 6,000 changes and averaged more than one change per day.
  • The U.S. tax code is nearly four million words long.
  • The last major reform to the U.S. code was over 30 years ago under then President Reagan.

If you have questions about this tax plan, or how your taxes may be affected in the coming years, have a member of the Barnes Dennig Tax team reach out to you here.

 

[1] https://www.whitehouse.gov/blog/2017/04/26/president-trump-proposed-massive-tax-cut-heres-what-you-need-know