President-elect Donald Trump promises dramatic changes to the current tax laws. Below is an overview of the likely changes as proposed by President-elect Trump, followed by some year-end planning recommendations based on the proposed changes.
- Individual income tax rates would be substantially reduced. The current seven individual tax brackets would be reduced to three, with the current top rate reduced from 39.6 percent to 33 percent:
- 12 percent rate on income up to $75,000 for married taxpayers ($37,500 for single taxpayers) along with a 0 percent capital gains tax rate.
- 25 percent rate on income between $75,000 and $225,000 (between $37,500 and $112,500 for single taxpayers) along with a 15 percent capital gains rate in this bracket.
- 33 percent rate on income above $225,000 (above $112,500 for single taxpayers) along with a 20 percent capital gains rate for this bracket.
- Limits on deductions (other than charitable and home mortgage interest). Itemized deductions would be limited to $200,000 for married taxpayers and half of that amount for single taxpayers. The standard deduction for married taxpayers would increase to $30,000 ($15,000 for single taxpayers) but there would no longer be personal exemption deductions.
- Elimination of the Alternative Minimum Tax (AMT) for individuals and corporations
- 3.8 percent Net Investment Income tax would be eliminated, if the Affordable Care Act is repealed or replaced
- Corporate tax rate of 15 percent – down from the current top corporate rate of 35 percent.
- Immediate write off for capital expenditures but no deduction for interest on borrowing
- Maximum 25% tax bracket on business pass-thru income (e.g., partnership or S corporation)
- Lower or no tax on business income generated by overseas sales of US goods
- Repeal of the estate tax, to be replaced by carryover basis and capital gains tax with $10 million exclusion
- Repeal of gift tax, although tax may be maintain in order to avoid income shifting.
Recommendations
- In contemplating the proposed changes under the proposed Trump plans, it may make sense to accelerate income tax deductions, including but not limited to maximizing contributions to IRAs and other qualified retirements plans.
- If your itemized deductions exceed the newly proposed limits, you may want to consider bunching more of your itemized deductions into 2016.
- In light of the proposed income tax rate reductions, it may make sense to postpone or defer receipt of income until 2017.
- Businesses should defer purchase of capital assets considering the proposed immediate write-off of such acquisitions.
For more information please contact Patrick J. Tulley at 216.736.7226 or pjt@kjk.com