** This article has been revised from its original version which was published on June…
On September 27, 2017, President Trump’s Administration released its “Tax Reform Plan.”
In addition to consolidating tax brackets from seven to three (12%, 25%, and 35% with income ranges to be provided later), President Trump’s new plan has addressed eliminating certain state and local tax deductions heavily utilized by New York and New Jersey residents and eliminating the estate tax.
Below is a summary of President’s Trump’s plan, which impacts both individual and business taxpayers:
Personal Tax Changes:
- A bottom individual tax rate of 12%. Currently, the bottom bracket is 10%, however, this rate will likely apply to taxpayers currently in the 15% bracket. Also, the larger standard deduction will likely benefit taxpayers in this 12% bracket.
- A middle tax bracket of 25%.The incomes in this bracket aren’t specified.
- The top individual tax rate of 35%.The current top rate is 39.6%.
- The possibility of a fourth, higher bracket. (Awaiting further details – the word is a higher bracket for those with taxable income of over $750,000).
- A larger standard deduction. Increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700), however, should be considered in light of losing other deductions.
- Eliminates most itemized deductions. Charitable gifts and home-mortgage interest will remain however most state and local taxes will no longer be deductible.
- Repeals the alternative minimum tax (AMT). This would be a significant benefit for people with high income that have used special tax benefits to pay little or no tax but were subject to the AMT.
- Increases the size of the child tax credit and adds a non-child dependent care credit.
- Retirement savings and other deductions. (Awaiting further details)
- Elimination of the state and local tax deduction. This will be a penalty on taxpayers residing in high-income tax states like New York and California. This may also impact property valuations since property taxes may no longer be deductible.
- Elimination of the estate tax. This would benefit the .02% of U.S. citizens who are currently subject to federal estate tax. This would be a significant benefit for wealthier Americans.
Business Tax Changes:
- A 20% corporate tax rate.
- A 25% rate for pass-through businesses.
- Elimination of some business deductions, industry-specific incentives, and more.
- A one-time repatriation tax (expected to be around 10% tax)
And now for the negotiations that will ensue. There are disparate views in Congress and it is difficult to predict whether a significant enough consensus can be hammered out that would result in new tax legislation. We will update you as we enter the “Tax Reform” debate stage.