White House to Become the New Trump Tower – What That Means for U.S. Taxes

Donald Trump’s victory, coupled with Republicans retaining control of both chambers of Congress, could result in an overhaul of the the-white-houseU.S. tax code, the tax planning implications of which could be critical. Based on the tax reform plan the Trump campaign released earlier this year, tax law changes might include the following:

  • Reduction in overall income tax rates for most individual taxpayers and corporations
  • Broadening the tax base by reducing or eliminating some tax deductions
  • Restructuring of U.S. taxes on income from abroad
  • Repeal of the estate tax and gift tax
  • Repeal of the taxes imposed by the Affordable Care Act

Congressional proposals:

paul-ryanBack in June, House Speaker Paul Ryan published a set of campaign promises, which included the House Republicans’ proposed changes to tax law.  The overall theme of these proposals was tax cuts and tax simplification, including a “postcard” tax return.  Although the postcard seems unlikely to survive Washington’s lobbyists, it does suggest a direction that the House is likely to take.  In the Senate, key Republicans have indicated that the Senate will take up tax legislation through the budget reconciliation process, which means that a simple majority, rather than a 60-vote supermajority, will be sufficient to pass the legislation in the Senate.

What might change?

We have detailed below the proposals that the Trump campaign had made, with the related House Republican proposals in italics.

Proposed changes that would affect individuals:

  • Reducing ordinary income tax brackets to 12%, 25% and 33%, with lower rates for capital gains and qualified dividends (House proposal: same percentages, but different brackets and different rates for capital gains/dividends)
  • Eliminating the Head of Household filing status (House: no such proposal)
  • Abolishing the 3.9% net investment income tax and the 0.9% additional Medicare tax (House: same)
  • Eliminating the personal exemption, but expanding dependent-related credits (House: similar proposal)
  • More than doubling the standard deduction, to $15,000 for singles and $30,000 for married couples filing jointly (House: $12,000 and $24,000)
  • Capping itemized deductions at $100,000 for single filers and $200,000 for joint filers (House: no maximum amount, but only mortgage interest and charitable contributions would be deductible)
  • Abolishing the alternative minimum tax (House: same)
  • Abolishing the federal estate and gift taxes; step-up in basis would be disallowed for some estates worth more than $10 million (House: same, except step-up is not mentioned)

Proposed changes that would affect businesses:

  • Reducing the top corporate income tax rate from 35% to 15% (House: 20%)
  • Abolishing the corporate alternative minimum tax (House: same)
  • Allowing owners of flowthrough entities to pay tax on business income at the proposed 15% corporate rate rather than their own individual income tax rate (House: 25%)
  • Eliminating the 9% domestic production activities deduction, as well as many business credits, but keeps the research & development credit (House: similar proposal)
  • Allowing U.S. companies engaged in manufacturing to choose the full expensing of capital investment or the deductibility of interest paid (House: similar proposal with respect to capital investments; would eliminate interest deductions on future loans)
  • Enacting a deemed repatriation of currently deferred foreign profits at a 10% tax rate (House: similar proposal)

The only certainty is uncertainty

So, while major tax law changes may be on the agenda, it’s difficult to determine which provisions will actually be signed into law.  This ambiguity makes tax planning difficult.  Contact us today at (408) 287-7911 or to help you develop a plan that considers the variables.