Donald Trump took office on Jan. 20 as the 45th President of the United States. When the 115th Congress convened in January, the Republican Party had control of the Presidency, the House of Representatives and the Senate. Whereas there are differences in Trump’s proposed tax legislation and the proposals published by the House Ways and Means Committee, there are still some similarities that lead us to believe that tax legislation is likely to be enacted in 2017.
A political candidate’s proposals can and often do change after taking office, so my discussion here is a broad-brush picture of some of the major tax proposals that Trump has discussed and that likely will be considered by Congress.
Under Trump’s proposal, the individual income tax rates would be lowered. The proposed rates when compared to the 2016 tax rates would look something like this:
- 2016 tax rates of 10 percent and 15 percent would be 12 percent under the proposal
- 2016 tax rates of 25 percent and 28 percent would be 25 percent under the proposal
- 2016 tax rates of 33 percent, 35 percent and 39.6 percent would be 33 percent under the proposal
The tax rates for long-term capital gains and dividends would presumably be realigned to mirror the proposed rates above with a maximum rate of 20 percent.
Trump has proposed to repeal the Alternative Minimum Tax which currently is generally a flat tax of either 26 or 28 percent on taxable income as modified by the elimination of certain deductions. Many taxpayers are subject to the Alternative Minimum Tax. The last time Congress reviewed this tax, there was a vote to provide higher exemptions to reduce the number of affected taxpayers, but there was no effort to eliminate this tax.
President Trump has also proposed to eliminate the federal estate and gift tax. He also proposed that inherited stock and other assets from estates of more than $10 million would not get a tax basis step up, thus making sale of those assets after inheritance subject to potentially higher taxes. Republican members of Congress have criticized this last proposal. Some Democrats are against any repeal of the estate and gift tax.
The Affordable Care Act, also known as Obamacare, had created new surtaxes to help fund certain provisions of the Act. During Trump’s campaign, he made repeal of Obamacare a top priority. Repeal of Obamacare may entail elimination of the surtaxes. These surtaxes include the 0.9 percent additional Medicare tax on high dollar wages and self-employment income and a 3.8 percent Medicare tax on net investment income, including long-term capital gains and dividends. Some of the more recent discussion has been to repeal certain parts of the Obamacare act.
The current corporate tax rate is 35 percent. Trump has proposed to reduce this tax rate to 15 percent. Further, he has proposed extending this 15 percent rate to other businesses, such as partnerships and sole proprietorships.
As you can see, there are major tax proposals that will be considered in the next several months. Compromise will surely be the order. No one knows today what those compromises will consist of. Still, it is good to know what proposed legislation is being discussed and that the climate for taxpayer-friendly law changes is excellent.
Is there any tax planning to do right now? If you have the ability to defer income from the tax year 2016 to 2017 or accelerate deductions into 2016 from the year 2017, then you should discuss these options with your tax advisor.
Jim Rice, CPA, is a shareholder at Sol Schwartz & Associates PC (email@example.com). He has over 38 years of experience in public accounting. In addition to providing business consultation, financial planning and various other accounting services, Rice specializes in income tax planning and consultation. He works with a high concentration of physician practices and high net worth individuals. Contact Rice at 210-384-8000, ext. 112.