President-elect Donald J. Trump has talked and written extensively about the changes he wants to make in the tax code.
While the details are still to come and Congress will surely have its say, paying early attention to likely tax code changes and planning adjustments based on “what-if” calculations could save you a good deal of money.
Here are 10 of the most likely changes to the tax code that Trump proposed during his campaign:
n Corporate taxes. He wants to lower the rate from 35 to 15 percent. The cut would not apply to pass-through business income. Trump’s plan would also eliminate the corporate alternative minimum tax and levy a one-time 10 percent tax on the unrepatriated profits of foreign subsidiaries of U.S. companies in the year the proposal goes into effect, which can be paid over 10 years. Future profits would be taxed as they are earned. He would also create an election for companies manufacturing in the U.S. to either expense the full capital investment or deduct the interest paid for their activities. He proposed eliminating the domestic production activities deduction (Sec. 199) and all other business credits except for the R&D tax credit. Manufacturers would lose their deduction for interest expense but would be able to expense immediately all of their investment costs.
n Individual taxes. Trump recently released a plan that would create three federal income tax brackets. Because of the increase to the standard deduction discussed below, individuals with adjusted gross income up to $15,000 and married filing joint couples with AGI up to $30,000 would pay no tax. MFJ taxpayers would pay a 12 percent rate if their AGI remains under $75,000, 25 percent if their AGI falls between $75,000 and $225,000, and 33 percent if AGI exceeds $225,000. Carried interests would be taxed as ordinary income, and the individual AMT would be repealed.
n Capital gains. Capital gains would be capped at the current rate of 20 percent.
n Estate taxes. These would be repealed but capital gains exceeding $10 million that are held until death would be subject to tax.
n International taxes. A one-time deemed repatriation tax of 10 percent would be levied on corporations with cash held overseas. The deferral of corporate income earned abroad would be repealed.
n Exemptions, deductions and credits. Itemized deductions would be capped at $100,000 for single filers and $200,000 for MFJ. The standard deduction would increase to $15,000 for single filers and $30,000 for MFJ, and personal exemptions would be eliminated.
n Net investment income tax, repeal.
n The Affordable Care Act, repeal and replace.
n Child care. A credit for businesses offering on-site child care would increase to $500,000 and the recapture rules would be reduced to five years. Direct employee subsidies would be taxable to the employee.
n Children and elderly parents. An above-the-line deduction for child care for up to four children or elder care for parents would be capped at state average costs. Stay-at-home parents would have a similar deduction. Spending rebates would also be available through the earned income tax credit.
With Republicans controlling Congress and the White House, it should be easier to reach agreement on overall changes. •
Scott Wragg, CPA, MST, is a managing director at CBIZ Tofias. He can be reached at SWragg@cbiztofias.com.
