On Wednesday, September 27, 2017, President Donald Trump and Congressional Republican leadership unveiled a new, ambitious proposal for tax reform. We believe that the tax system badly needs comprehensive reform, and applaud our elected officials’ efforts toward that end.
Although many details which must underpin the proposal have yet to be released, here are a few of the salient takeaways:
• Reducing the current 7 individual income tax rates to 3: 12%, 25%, and 35% (a reduction to the top rate from the current 43.8%). The proposal leaves room for a 4th, higher rate for top-income earners. The proposal does not indicate income brackets to which the proposed tax rates would apply.
• Approximately doubling the standard deduction to $12,000 for individuals and $24,000 for married couples, and eliminating the personal exemption.
• Eliminating the deduction for state and local tax payments, but retaining the deductions for mortgage interest and charitable contributions.
• Eliminating the Estate Tax.
• Eliminating the Alternative Minimum Tax (AMT).
• Reducing the corporate income tax rate from 35% to 20%.
• For corporations with income reported on an individual’s 1040, a potential top income tax rate of 25%, regardless of the applicable tax rate on the individual taxpayer’s other earned income.
• Potentially limiting the deduction for interest expense on business loans.
• Allowing 100% expensing, rather than requiring depreciation, on the costs of certain corporate investments, with the exception of buildings / structures, for at least 5 years.
• Eliminating the corporate AMT.
While Republican leadership maintains that the goal is to pass tax reform during 2017, we feel this may be an over-optimistic outlook. However, whether tax reform is enacted in 2017 or 2018, we believe that comprehensive tax reform is overdue, and look forward in the hope that we may, potentially, see significant reform in the not-too-distant future.
Tax reform has the potential to affect many taxpayers, both individual and corporate. Call us today – we can help you position yourself to take advantage of tax breaks likely to affect you, your business, and your family, while protecting yourself under the current tax code.
Stay tuned to our blog for updates and commentary, as events unfold.