President Trump has proposed a detailed tax plan that will revise and update both the individual and corporate tax codes.
Here are some of the key plan elements that could affect individuals and small business owners, if enacted into law.
Top tax rates decrease
Currently the 2017 top tax rate on ordinary income is 39.6%. Under the Trump Tax Plan, the top rate on ordinary income will drop to 33%. He has also proposed lower rates throughout all tax brackets.
More taxpayers will pay the 20% tax capital gains. This 20% rate will kick in for all taxpayers in the top bracket ($127,500 if single and $255,000 if married filing jointly). Currently this rate doesn’t kick in until you earn more than $425,400 if single and $487,650, if married filing jointly.
One tax rate for businesses
Trump plans a single 15% tax rate for business income, whether the business is an S-corporation, partnership or Schedule C. Because sole proprietorships qualify, we may see more wage earners become self-employed business owners.
Under the Trump plan we would also see a 100% expensing of all asset acquisitions, with no limitation.
For individual taxpayers, Trump is planning an overall limit on itemized deductions of $100,000 if single, and $200,000 if married filing jointly. Currently, itemized deductions are reduced by 3% for every dollar the taxpayer’s income exceeds $250,000 if single, and $300,000 if married filing jointly.
Elimination of the estate tax
Trump has proposed eliminating the estate tax. Still up for discussion is the gift tax or whether the estate tax will be eliminated all at once or phased out over time. Also, there would be no step-up in basis. It is unclear if under Trump’s plan the heirs would take the assets at the decedent’s basis or if appreciation on the assets is taxable at death.
Other key plan features for individuals
The Trump Tax Plan also eliminates:
- Head of household filing status for single parents
- Net investment income tax
- Alternative minimum tax (AMT) for individuals
The plan increases the standard deduction from $6,300 to $15,000 for singles and from $12,600 to $30,000 for married couples filing jointly. It also taxes carried interest as ordinary income.
Other changes impacting businesses
Businesses will need to pay attention to these proposed changes as well:
- Reduction in the corporate income tax rate from 35% to 15%.
- Elimination of the corporate AMT.
- Elimination of the domestic production activities deduction (Section 199) and all other business credits, except for the research and development credit.
- Implementation of a deemed repatriation of currently deferred foreign profits, at a tax rate of 10%.
We’ve got your back
Of course, these were campaign proposals and we don’t know if they will become law. KRS CPAs will keep you updated on important revisions to the tax code via email radar and blog posts. If you aren’t already registered for our email radars and newsletter, sign up here.