The November election results came as a surprise to many, so much so that “surreal” is Merriam-Webster’s Word of the Year for 2016.
Setting aside political views, tax practitioners expect the leadership change to have a significant, immediate impact on the country’s tax landscape, with tax reform being a major objective of the Republican establishment. The robust list of potential changes includes simplification and reduction of tax rates, changes to the standard deduction and personal exemption, repeal of the Alternative Minimum Tax, and repatriation of corporate foreign earnings, among others. The House of Representatives released a tax reform blueprint last year that in many ways lines up with President Trump’s tax reform proposals.
- The President and the House have proposed significant reductions to tax rates, including a drop in the top individual rate from 39.6 percent to 33 percent.
- For individuals, the proposed tax reform would replace the current six tax brackets with three brackets, with rates set at 12, 25, and 33 percent.
- Both plans also include a reduction to the corporate rate from 35 percent to 15-20 percent.
- The 20 percent rate on long-term capital gains and qualified dividends would remain the same under the President’s plan.
Other Proposed Changes
- Itemized Deductions would be capped under the President’s plan at $100,000 per individual.
- Elimination of the personal exemption ($4,050 per person in 2016, subject to phase-outs) would be replaced by an increase to the standard deduction to $15,000 per person ($6,300 per person in 2016).
- The President has also proposed a repeal of the estate and gift tax, with certain exceptions for appreciated property.
- The Alternative Minimum Tax, a supplemental income tax enacted in 1982, would be repealed under the plan.
- Both plans also call for a repatriation tax on corporate foreign earnings, although the rates are terms vary widely between the two plans.
While only time will tell how many of these changes will be implemented, and what the ultimate changes will look like, it is wise to keep apprised of the proposals in order to plan for the changes. Accordingly, tax planning will be top of mind as developments progress in 2017.
We encourage you to contact a Client Advisor with any questions.
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