On Wednesday, April 26, the White House issued its goals and priorities for tax reform in a one-page proposal of bullet points entitled “2017 Tax Reform for Economic Growth and American Jobs: The Biggest Individual and Business Tax Cut in American History.” While you’ve likely already seen a barrage of information and speculation surrounding the topic, keep in mind that this is a proposal, with very few details surrounding implementation. Below, we outline the proposed changes for businesses and individual taxpayers, alike, as well as the details still pending.
Changes for Businesses Under the Proposed Plan:
- Drastically lowers the corporate and small business tax rate
What we know: The President is calling to lower corporate tax rates from the current 35% to just 15%, which small and mid-sized businesses could also be eligible for, and, based on his prior campaign promises, could be made available to “pass-through” income (from partnerships, limited liability companies, and S-corporations that is “passed through” to owners), although it was not included in his one-page announcement. As would be expected, this appears to be the proposal garnering the most attention, especially if it extends to pass-through business income.
What we don’t know: How this incorporates the House Ways & Means Committee’s previously proposed “Border Adjustment - Tax” plan that could potentially fund tax reform. Additionally, details on what types of pass-through businesses would be eligible for reduced rates are not known at this time.
“Territorial” tax system and one-time tax on foreign earnings
What we know: This proposal would move the US to a tax system that only taxes companies on domestic income instead of worldwide income, while also instituting a one-time tax on the repatriation of US companies’ foreign earnings.
What we don’t know: What this one-time, reduced tax rate on repatriated foreign earnings would be.
Changes for Individual Taxpayers Under the Proposed Plan:
- Consolidated tax rates
What we know: Unlike our current system, made up of seven graduated tiers (10%, 15%, 25%, 28%, 33%, 35% and 39.6%), the President’s proposed plan includes just three tax brackets: 10%, 25% and 35%.
What we don’t know: Which income levels would be assigned to each of these rates.
Repeal of the Net Investment Income Tax, Alternative Minimum Tax and the federal estate tax
What we know: This proposal aims to repeal the 3.8% net investment income (NII) tax on interest, dividends and capital gains of high-income taxpayers that currently funds the Affordable Care Act, and to eliminate the Alternative Minimum Tax (AMT) and death/estate tax, altogether. - What we don’t know: How this affects taxes on carried interests.
Doubles standard deductions while limiting itemized deductions
What we know: This proposal would double the standard deduction for taxpayers, while also limiting itemized deductions to only mortgage interest and charitable contributions (from the various deductions taxpayers can currently take, including removing local and state tax deductions); lastly, it would provide relief to families with child and dependent care expenses.
What we don’t know: What tax relief for families with child and dependent care expenses it would provide and how.
This is the initial phase of information related to any potential tax reform. There are many steps and hurdles the White House will need to take for this proposal to become a solidified plan that passes both chambers of Congress and becomes legislation. Until then, and, as always, your advisors at Weinstein Spira will be actively monitoring all movement related to the President’s tax reform proposal and how it could impact you, our valued clients, moving forward.
Should you have any questions or concerns about your potential impact, please contact your advisor at Weinstein Spira.
