Just days before President Trump’s “100 days” in office, he unveiled his highly-anticipated tax reform outline –the “2017 Tax Reform for Economic Growth and American Jobs.” The outline calls for dramatic tax cuts and simplification: lower individual tax rates under a three-bracket structure, doubling the standard deduction and more than halving the corporate tax rate. Additional modifications include changing the tax treatment of pass-through businesses, expanding child and dependent incentives and more. Plus, both the alternative minimum tax and the federal estate tax would be eliminated. Here’s a deeper glimpse into The President’s proposed tax reform:

INDIVIDUALS

  • Tax Rates – Replace and lower the current individual tax rates with a new, three-bracket range:
Income Tax Rate
Up to $75,000 12%
$75,000 – $225,000 25%
Above $225,000 33%
  • Standard Deduction – Double the standard deduction to help simplify tax filing for millions of Americans. Current standard deduction amounts are $6,350 and $12,700, respectively, as adjusted for inflation.
  • Deductions – Eliminate all individual tax deductions except for the mortgage interest deduction and the charitable contribution deduction.
  • Elimination of Targeted Tax Breaks – Eliminate targeted tax breaks that mainly benefit the “wealthiest taxpayers.” The President also mentioned eliminating carried interest during his campaign. Plus, various “preference items” that are now caught in the Alternative Minimum Tax may also be targeted for change.
  • Net Investment Income (NII) Tax – Repeal the NII tax, which currently imposes a 3.8 percent tax on certain income of higher income taxpayers. However, the President’s proposal apparently keeps the current framework for capital gains and dividend taxes at the top 20 percent rate.
  • Family Incentives – Unspecified tax relief for families with child and dependent care expenses. Under current law, taxpayers who incur expenses to care for a qualified child or for an incapacitated dependent or spouse to work or look for work may claim a credit of 20 percent to 35 percent of employment-related expenses, depending upon income level and other factors.
  • Estate Tax – Eliminate federal estate tax. The current maximum federal estate tax rate is 40 percent with an inflation-adjusted $5 million exclusion.
  • Alternative Minimum Tax (AMT) – Abolish the AMT, which has existed for the stated purpose of ensuring that individuals, corporations, estates and trusts with substantial income do not avoid tax liability.

BUSINESSES

  • Corporate Taxes – Reduce the corporate tax rate to 15 percent, which currently tops out at 35 percent. The President also proposed unspecified tax breaks for “special interests,” which would broaden the tax base and largely prevent most businesses from gaining an effective rate much lower than 15 percent.
  • Small Businesses – Allow small- and mid-sized businesses to pay a 15 percent tax rate for pass-through income. Currently, owners of S corporations, partnerships and sole proprietors pay tax at the individual rates, with the highest rate at 39.6 percent.
  • Bonus Depreciation/Small Business Expensing – The Protecting American from Tax Hikes Act of 2015 (PATH Act) extended and modified bonus depreciation and made permanent enhanced Code Sec. 179 expensing. The President’s proposal does not specifically address bonus depreciation or small business expensing.
  • Business Credits – A number of business incentives were made permanent by the PATH Act, including the research credit, 100 percent gain exclusion on qualified small business stock and the reduced recognition period for S-corporation built-in gains tax. These credits are not specifically addressed in The President’s proposal.

INTERNATIONAL

  • Repatriation – Implement a one-time tax on repatriated profits at a yet-unspecified tax rate. The blueprint states that “trillions of dollars” are being held overseas and potential targets for repatriation.
  • Territorial Tax Regime –Move to a territorial tax regime instead of a worldwide tax regime.

Count on Doeren Mayhew’s tax advisors for insight into the changes, how they impact your business and more. For more information, contact us today.