Details and Analysis of the Trump Tax Reform Plan

NOVEMBER 10, 2016

Now that Donald Trump has been elected President of the United States, we thought it would be helpful in connection with your 2016 year-end and future tax planning to summarize the key proposals in his tax plan proposals made during the campaign.

Changes to Individual Income Taxes:

  • Consolidates the current seven tax brackets into three, with rates on ordinary income of 12 percent, 25 percent, and 33 percent.
  • Adapts the current rates for qualified capital gains and dividends to the new brackets.
  • Eliminates the head of household filing status.

 

Individual Income Tax Brackets Under the Trump Plan:
Ordinary Income Rate Capital Gains Rate Single Filers Married Joint Filers
12% 0% $0 to $37,500 $0 to $75,000
25% 15% $37,500 to $112,500 $75,000 to $225,000
33% 20% $112,500+ $225,000+
  • Eliminates the Net Investment Income Surtax.
  • Increases the standard deduction from $6,300 to $15,000 for single taxpayers and from $12,600 to $30,000 for married couples filing jointly.
  • Eliminates the personal exemption and introduces other childcare-related tax provisions.
  • Makes childcare costs deductible from adjusted gross income for most Americans (above-the-line), up to the average cost of care in their state. This deduction would be phased out for individuals earning more than $250,000 or couples earning more than $500,000.
  • Offers credits (“spending rebates”) of up to $1,200 a year for childcare expenses to lower-income families, through the earned income tax credit.
  • Creates new saving accounts for care for children or elderly parents, or school tuition, and offers a 50 percent match of contributions.
  • Caps itemized deductions at $100,000 for single filers and $200,000 for married couples filing jointly.
  • Taxes carried interest as ordinary income.
  • Eliminates the individual alternative minimum tax.

Changes to Business Income Taxes:

  • Reduces the corporate income tax rate from 35 percent to 15 percent.
  • Eliminates the corporate alternative minimum tax.
  • Allows firms engaged in manufacturing in the U.S. to choose between the full expensing of capital investment and the deductibility of interest paid.
  • Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
  • Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 10 percent.
  • Increases the cap for the tax credit for employer-provided day care under Sec. 205 of the Economic Growth and Tax Relief Reconciliation Act of 2001 from $150,000 to $500,000 and reduces its recapture period from 10 years to 5.

Other Changes:

  • Eliminates federal estate and gift taxes but disallows step-up in basis for estates over $10 million.

Please contact us to see how these proposals may impact your individual tax planning.