Both individual and business tax overhaul will be near the top of the President-elect Donald Trump’s agenda next year. Tax reduction has been a key component of Trump’s economic plan. We could see changes as early as June 2017 with many provisions retroactive to January 1, 2017. Besides GOP control of both the House and Senate, relatively quick tax law changes will be made possible through the reconciliation process which is a way to fast track revenue and spending legislation into becoming law. A major aspect of the reconciliation process is that a reconciliation bill can be passed in the Senate by a simple majority. Here are some possible tax law changes.
Individual Taxation
The current top individual tax rate is 39.6%. Trump has proposed a system with only three tax rates on ordinary income, 12%, 25% and 33%.
The standard deduction could be increased to $30,000 for joint return filers and $15,000 for single return filers.
Look for possible repeal of the Alternative Minimum Tax. AMT would be replaced by limits on itemized deductions. The maximum amount of itemized deductions of joint return filers would be capped at $200,000 and $100,000 for single filers.
Capital gains rates most likely will remain the same. However the 3.8% tax on Net Investment Income could be repealed.
Possible repeal of the Estate and Gift Tax and disallowing step up basis for gains over $10 million, with some exceptions for small businesses and family farms.
Proposed Regulations limiting valuation discounts on transfers to Family Limited Partnerships would be repealed.
New deductions and increased credits for child and dependent care expenses.
Carried interest may be taxed at ordinary rates with an exception for real estate tax deals.
Business Taxation
Trump has proposed lowering the top corporate tax rate to 15% at the expense of eliminating certain unspecified corporate tax expenditures.
Small businesses including sole proprietorships, partnerships and S corporations could elect to be taxed at a flat rate of 15% rather than have owners paying tax at higher individual rate. The cost to the taxpayer for making an election would be that distributions would be subject to a second level of tax at the owner level.
Section 179 Expensing could be increased to $1 million.
There will be no changes to current bonus depreciation. The 2015 PATH Act extended bonus depreciation through 2019 with a phase out beginning 2018.
Trump has proposed allowing manufacturers to immediately expense all new investments in the business in lieu of deducting interest expense.
International Taxation
Companies may be given a one-time opportunity to repatriated foreign profits and pay tax at a 10% tax rate. It is estimated that as much as $2.5 trillion in foreign profits is held overseas.