Potential tax law changes and how you could be impacted
May 22, 2017Share:
With the release of President Trump’s outline for tax reform and the House Ways and Means Committee holding its first hearings last week, tax reform is finally gaining some momentum. The Committee on Ways and Means is the chief tax-writing committee in the House of Representatives. While no new laws have been passed or even drafted, it is important to understand the proposals as they morph into being. Here is an overview of Trump’s current proposal:
• Corporations may have a new 15% flat rate, as opposed to graduated rates up to 39%.
• Pass-thru entity and self-employment income may be taxed at 15%, but there may be a price tag of an additional tax on distributions along with compensation rules to prevent shifting of owner’s salary to pass-thru income.
• There are proposals to provide benefits to U.S. companies with foreign income.
• Individual taxpayers may have fewer tax brackets with rates of 10%, 25%, and 35%. Couple this with doubling the standard deduction ($12,700 for single filer and $25,400 for married filing jointly) and even if your tax rate increased, you might still pay less tax due to a higher standard deduction.
• For those who itemize deductions, many of them will be eliminated (all except mortgage interest and charitable contributions). For everyone, the “above the line” deductions such as the deductions for self-employment tax and self-employed health insurance may also be eliminated but it is unclear how retirement contribution deductions may be affected.
• Both the 3.8% net investment income tax and the Alternative Minimum tax may be repealed.
• There may be tax relief for families with children and dependent care expenses in the form of dependent care deductions and expanded earned income tax credit.
• Federal estate taxes may be repealed, however, it may come with a high price tag of elimination of the “step-up” in basis on inherited property for the beneficiary.
The lack of details regarding the plan make planning difficult. If you have questions about how these proposals may affect you or your business, please contact our office.