Last month, President Trump released his new tax reform plan. The plan is similar to the “Five-Part Tax Plan” outlined during Trump’s presidential campaign. The supporting document he shared with reporters referred to the plan as the “biggest individual and business tax cut in American history.” In this month’s TSLNH blog, we discuss how Trump’s tax plan may affect you and your business.
Short-term Gains and Long-Term Losses
According to the Urban-Brookings Tax Policy Center, the plan’s tax cuts will put more money into people’s pockets and boost the economy over the next two to three years. However, in the long run, the Center predicts the plan will dampen economic growth by adding over $11 trillion to our $19 trillion national debt. The center’s experts also suggest this will weaken the dollar and cause interest rates to rise.
Changes to Individual Income Tax Brackets
Trump’s plan will reduce our current tax brackets from seven to three, with a 35%, 25%, and 10% rate, respectively. Although the plan did not specify the income ranges for these tax brackets, some experts suggest it will be similar to the tax table Trump outlined during his campaign:
Other Individual Income Tax Changes
- A doubling of the standard deduction across all tax brackets.
- Elimination of all itemized deductions, except mortgage interest, retirement savings, and charitable contributions.
- Elimination of the estate tax or death tax. (Although the inheritance tax will still apply on capital gains).
- Elimination of the Alternative Minimum Tax and the Obamacare tax on investment income.
Whether or not Trump will keep the personal exemption is unclear. If Trump eliminates it, some families may pay more in taxes, even with the increase in standard deductions.
Child and Elder Care Deductions
Trump’s 2017 plan promises tax relief for families with child and dependent care expenses. The specific details were included in the proposal he promoted during his 2016 campaign.
Corporate Tax Changes
- Decreasing the maximum small business and corporate (including partnerships, real estate companies, hedge funds, and private equity funds) tax from 38 to 15 percent.
- Creation of a one-time “repatriation tax” on the trillions of dollars held by corporations overseas. Although the rate is not determined as of yet, Trump set it at 10 percent during his 2016 campaign.
- Elimination of the estate (death) tax, which White House chief economic advisor Gary Cohn says will help privately-held businesses and American farmers. However, some independent analysts suggest this tax affects only a small portion of Americans.
- Development of a “territorial tax system” in which only US-related profits are taxed.
Time to Watch and Wait
Until its impact on our national deficit is reduced (experts suggest it will nearly double it), Trump’s current tax plan is not likely to pass. The U.S. Department of the Treasury continues to meet with Congress and stakeholders to further refine the plan. We can’t be 100% certain on how Trump’s tax plan may affect your you and business until more specific details are released. We should expect to see a more detailed plan in June. So for now, we all need to watch and wait.
Individual and Business Tax Accountants in NH
Confused yet? As tax codes and compliance issues become increasingly more complex, individuals and businesses are turning to Tax Services of Londonderry, NH for support. Our professional team of experts is here to provide the tax assistance, booking, or accounting services you need. Contact us today to learn how we can help you save time and money.