By Steven Eliach  |  November 16, 2016

Election outcome likely to result in major tax law changes

The unexpected election of Donald Trump as President of the United States, along with Republicans retaining control of both chambers of Congress, will likely result in some changes to the U.S. tax code.

Based on Trump’s tax reform plan released earlier this year, tax law changes may include a reduction in tax rates for some individual taxpayers and corporations, the elimination of several tax breaks, a restructuring of U.S. taxes on income from abroad, the elimination of the estate tax, and a partial or full repeal of the Affordable Care Act.

Proposed tax changes for individuals and businesses

President-elect Trump’s tax reform plan includes the following changes that would affect individuals:

  • Reducing the number of income tax brackets from seven to three, with rates on ordinary income of 12%, 25% and 33%, and adapting the current rates on long-term capital gains and qualified dividends for the new brackets;
  • Eliminating the head of household filing status;
  • Abolishing the net investment income tax;
  • Eliminating the personal exemption (though expanding child-related breaks);
  • More than doubling the standard deduction, to $15,000 for singles and $30,000 for married couples filing jointly;
  • Capping itemized deductions at $100,000 for single filers and $200,000 for joint filers;
  • Abolishing the alternative minimum tax; and
  • Abolishing the federal gift and estate tax, but disallowing the step-up in basis for estates worth more than $10 million.

Proposed changes that would affect businesses include:

  • Reducing the top corporate income tax rate from 35% to 15%;
  • Abolishing the corporate alternative minimum tax;
  • Allowing owners of flow-through entities to pay tax on business income at the proposed 15% corporate rate rather than their own individual income tax rate, although there seems to be ambiguity on the specifics of how this provision would work;
  • Eliminating the Section 199 deduction, also commonly referred to as the manufacturers’ deduction or the domestic production activities deduction, as well as most other business breaks — but, notably, not the research credit;
  • Allowing U.S. companies engaged in manufacturing to choose the full expensing of capital investment or the deductibility of interest paid;
  • Enacting a deemed repatriation of currently deferred foreign profits at a 10% tax rate; and
  • Bear in mind that there is a considerable degree of uncertainty about the actual details of President-elect Trump’s tax reform plan. However, during the course of the campaign, some of its provisions have aligned with the House Republicans’ tax plan.

Planning uncertainties

With President-elect Trump soon to be in the White House and continued Republican control of the Senate and the House, major tax law changes likely are on the horizon. However, at this time it’s difficult to determine which provisions of the ambitious tax reform plan will be signed into law. This uncertainty makes tax planning difficult. We can help develop a plan that can take into account all of the variables.

About Steven Eliach

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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 +

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