Tax Alert: Trump Administration’s Tax Plan ExplainedBy Steven Eliach | May 17, 2017
On Wednesday, April 26, 2017, the Trump Administration unveiled a tax plan that proposes significant reductions to individual and corporate tax rates, reduces the number of individual tax brackets to three – 10 percent, 25 percent and 35 percent – and repeals the estate tax – among other proposals. While the plan has been presented as a broad outline, rather than in legislative text, the proposal represents a significant overhaul of the US tax system.
Here are the key points of the Trump tax plan, as it was released:
- Corporate tax rates reduced to 15%, from the current 35% rate.
- Lower tax rate for pass-through business owners: Instead of self-owned business owners being taxed at the personal income rate, pass-through business owners would have incomes from operations taxed at a flat 15% rate. Income from these businesses would be taxed at the same rate as the proposed new corporate rate. The general view is that there are significant issues that are not addressed in this specific proposal.
- No border-adjustment tax: The plan does not include a House border-adjustment tax proposal. A border adjustment would eliminate the ability for companies to deduct the cost of imports and, at the same time, eliminate the tax on income attributable to exports.
- Individual tax adjustments: Reduction from seven to three tax brackets with rates of 35%, 25%, and 10%.
- Double the standard individual tax deduction: Under the plan, individual filers would be allowed to deduct their first $12,700 in income from their taxes and $25,400 for joint filers. The current standard deduction is $6,350 for individuals and $12,700 for joint filers.
- A one-time repatriation tax: The plan calls for a one-time tax incentive that would allow companies to bring back money from overseas to the US subject to a slightly lower tax rate. Officials did not clarify the rate at which this money would be taxed.
- Eliminate the estate tax: The plan eliminates the so-called “death tax” on assets that are subject to the estate tax.
- Eliminate itemized tax deductions other than charitable donations and mortgage interest payments.
- Repeal 3.8% tax on net investment income: The plan repeals a tax that is currently levied on "individuals, estates and trusts" with higher than a certain threshold in investment income.
- Repeal the alternative minimum tax:The plan eliminates the dual tax regimes for calculating income taxes that impact certain individuals with large amounts of deductions.
What this means for you
While the Trump Administration’s tax plan contains few details, it does generally describe several key provisions that have been previously proposed, discussed or otherwise introduced in Congress. It is likely the legislative and political process may change some of the proposal, and we anticipate the debate over tax reform will continue throughout the summer months – resuming with more legislative clarity following the August recess.
We will keep you updated as more information becomes available.
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About Steven Eliach
Steven Eliach, JD, LL.M., is the Principal-in-Charge of Tax Services at Marks Paneth LLP. He specializes in taxation for the real estate industry, estate planning and income taxation of closely held companies including start-up technology companies. In addition to his client service responsibilities, as Principal-in-Charge of Tax Services, Mr. Eliach is responsible for overseeing the firm’s tax engagements, which include international tax, individual tax, trust and estates, corporate and partnership tax and state and local... READ MORE +