With the unexpected ascension of President-elect Donald Trump, all eyes are on Washington to see how the new Trump White House will respond to the most pressing issues in the United States. Between immigration, national security and a new Supreme Court justice, there is no shortage of moves that require the nation’s attention.
One of the most critical changes—the Trump tax plan agenda—likely won’t come from the Oval Office at all.
It is coming from Capitol Hill—Speaker of the House Paul Ryan’s office and the House’s Ways and Means Committee, to be exact. There, the new Republican majority is working on what could be the most sweeping tax reform legislation since the start of the Reagan Revolution in 1981.
With one party in control of both houses of Congress as well as the Executive Branch of government, you can reasonably expect the government to pass these new measures quickly.
First, the good news. Depending on the deductions your business usually takes, you could be seeing a radical tax break starting in 2017.
The corporate income tax rate could fall to as low as 15 percent. Some think it won’t go lower than 27 percent.
Any lower rate is better than the current rate, which is 35 percent. In the case of pass-through entities, it is as high as 39.6 percent. Some tax credits, such as the employer-provided day care, could be expanded, and the corporate alternative minimum tax might be eliminated.
Other credits and deductions could shrink or go away, which could impact your overall tax situation.
BE PROACTIVE: Huddle with your CFO and CPAs as soon as you can—if you have not done so already—and get ready to make some changes.
Companies with interests overseas see changes as well. Foreign income is likely “deemed” to be repatriated and would be taxed at a rate of 10 or 15 percent. The idea is to trigger cash coming back into America from multi-national companies.
For domestic manufacturers, the possible removal of the Section 199 Domestic Production Deduction would cut off relief that companies typically seek to the tune of a 9 percent deduction.
Manufacturers might have to choose between:
With the new tax structure, individuals have plenty on the line as well. Possibly even more than businesses.
Trump Tax Plan for Individuals: The number of individual tax rate brackets will be reduced from seven to three, making things easier to calculate, if not better for your personal bottom line. It is likely that those rates will be: 33, 25 and 12 percent.
While not a flat tax, it would certainly be “flatter.”
In another possible tax break, we may see the elimination of the 3.8 percent net investment income tax. This means individuals could pay less tax on:
This would make it easier to sell an investment. It might also prompt people to sell equities and real estate at possibly lower prices, but massive deflation is not projected.
Additionally, the Trump Administration could eliminate the alternative minimum tax for individuals. Itemized deductions might cap out at $100,000 for single filers and $200,000 for married joint filers.
Plus, with the elimination of personal exemptions, the standard deduction could increase to $15,000 for single filers and $30,000 for those filing jointly.
Trump’s administration might oversee a significant overhaul coming down the pike for estate and gift taxes.
If Republicans get their way in 2017, the current federal estate and gift tax would go away. However, estates worth more than $10 million still can’t use step-up basis. This particular repeal might not happen. Rather, the federal estate and gift tax rates might fall to 25-33 percent instead.
In short, there is much to track as our new leaders roll out their plans.
CONSULT YOUR CPA: Taxes will affect our lives and our businesses as much as any other issue out there. It is critical to consult with your CPA. You don’t want to get caught by surprise by Trump’s sweeping tax changes.
Michael Silvio, CPA, is a Tax Director at Hall & Company. He has more than 25 years of experience in public accounting and tax and has served a variety of public and private businesses in the manufacturing, distribution, pharmaceutical and biotechnology sectors. He can be reached at email@example.com. For more information, please visit www.hallcpas.com.
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