Taxes may not be in the forefront of the public mind in the aftermath of the 2016 presidential election, but the outcome could have a significant effect on taxes as we know them.
Newly elected president Donald Trump spoke about his tax plan throughout his campaign. Now that he’ll be taking the Oval Office, he has a chance to make his plans a reality. Here are 10 key provisions from Trump’s campaign tax plan that he endorses:
1. Corporate tax: Tax rates would be capped at 15 percent. Most incentive deductions and credits would be eliminated, with the exception of the research and development (R&D) tax credit. Manufacturers can elect to expense immediately all of their investment costs, but if they choose to do so, they would lose their deduction for net interest expense. The corporate alternative minimum tax (AMT) would be repealed.
2. Individual tax: Because of the increase to the standard deduction discussed below, individuals with adjusted gross income (AGI) up to $15,000 and married filing joint (MFJ) 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 Carried interests would be taxed as ordinary income, and the individual AMT would be repealed.
3. Capital gains: Tax rates on capital gains would be capped at the current rate of 20 percent.
4. Estate taxes: Estate taxes would be repealed, but capital gains exceeding $10 million that are held until death would be subject to tax.
5. International tax: A one-time deemed repatriation tax of 10 percent would be levied on corporations with cash held overseas. Initially Trump proposed that the deferral of corporate income earned abroad would be repealed, but his most current plan calls for no changes.
6. 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.
7. Net investment income tax: Repeal.
8. The Affordable Care Act (ACA): Repeal and replace.
9. Childcare – business: A credit for offering onsite childcare would increase to $500,000, and the recapture rules would be reduced to five years. Direct employee subsidies would be taxable to the employee.
10. Childcare costs: An above-the-line deduction for childcare for up to four children or elderly 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.
It is difficult to gauge the likelihood that President Trump can pass comprehensive tax reform. The prospect of tax reform was a divisive issue in Congress during the Obama administration, but with Republicans controlling Congress and the White House, it should be easier to reach agreement on overall change. Be sure to contact your tax professional if you have questions about how the outcome of the election could affect your tax obligations.