In April, President Trump released his tax reform plan, titled “The 2017 Tax Reform for Economic Growth and American Jobs.”
Broadly speaking, the plan reduces the number of tax brackets for individuals from seven to three. The alternative minimum tax (AMT) is eliminated, as are several tax deductions that were big generators of the AMT – state income taxes and real estate taxes.
In fact, the plan eliminates all itemized deductions, except for mortgage interest and charitable contributions. The plan also raises the standard deduction in an attempt to reduce the burden of compliance. As a result, fewer people are likely to itemize their deductions. Personal exemptions are also eliminated.
There is no change to the capital gains rate under this plan, but the plan does eliminate the net investment income tax, which affects taxpayers with incomes in excess of $250,000 ($200,000 if single). The plan also proposes to eliminate the estate tax, but possibly not the gift tax. However, the details of this are unclear at this printing.
For corporations, including S corporations and partnerships, the plan proposes a 15 percent top corporate tax rate. The corporate plan also moves to a territorial form of taxation, rather than the current worldwide tax system, which would eliminate the tax on foreign source income.
Analysts have stated that the potential problem with the plan is that it could possibly increase the national debt by more than $5 trillion over 10 years. In addition, the plan does not contain any significant revenue raisers at this time.
The plan must be drafted in the U.S. House and the Senate and then go through reconciliation before passing the House and the Senate and arriving on President Trump’s desk to sign into law.
In April, it was anticipated that the plan would be finalized as early as August 2017. Currently, commentators are suggesting that there may not be a new law in place until 2018. Below is the original release for President Trump’s tax reform plan and a summary of the bill from Wolters Kluwer.
Please direct any questions to your Huberty CPAs trusted advisor or Huberty CPAs Director of Tax Services Robin Lutz, CPA, MT.