By Melissa Ballantine
President Donald Trump and Republican leaders in Congress unveiled a framework for tax reform on September 27, 2017. This framework includes many significant changes for both individual and corporate income taxpayers. Here are some of the larger proposed changes that may impact you.
The proposed framework would reduce the number of individual tax brackets from seven to three. The proposed rates are 12%, 25% and 35%. There will also be an additional top rate which will be applied to the highest net income taxpayers so that the tax burden would not be shifted to the middle and lower income taxpayers.
The proposal includes a significant adjustment to the standard deduction for married filing jointly ($24,000) and for single filers ($12,000). The proposal also includes an unspecified increase to the child tax credit. However, the plan also calls for the elimination of the personal exemption and many itemized deductions.
The plan also includes the elimination of the AMT tax for individuals. Both the Joint Committee on Taxation and the IRS Taxpayer Advocate have recommended this repeal and state that the AMT tax no longer meets its original intent.
The Corporate tax rate will be lowered from 35% to 20% under this proposal. This rate is positioned below the average corporate rate of the industrialized world. The lower rate is intended to make it less appealing for domestic companies to operate abroad.
Also, there will be special rules put in place so that Pass-through businesses have a top rate of 25%. This is a significant reduction from the top rate of 39.6% that they are currently subject to.
The proposed changes also have a major expensing component. The proposal would allow for the expensing of capital investments, other than structures beginning 9/27/17 and for at least the next five years. This is a major acceleration of deduction that is aimed at encouraging capital investment.
The proposal includes many significant changes to our current tax laws and if passed in its current form, or some modified form, will likely have an impact on you as a taxpayer. Make sure to watch for further updates as the proposal moves towards its final version and potentially into law.