What You Should Know About the Tax Changes Proposed Today

This morning, the Trump Administration, the House Committee on Ways and Means and the Senate Committee on Finance released “A Unified Framework for Fixing Our Broken Tax Code.” Here are the significant points:

AFFECTING INDIVIDUALS

Tax Brackets.

  • The number of tax brackets is reduced from seven to three. Currently, the lowest tax bracket is 10{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a} and the highest is 39.6{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a}. This proposal creates 12{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a}, 25{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a}, and 35{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a} tax brackets. The proposal does not specify the income levels qualifying for each of the newly proposed brackets.

Deductions.

  • The standard deduction for income tax almost doubles, to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700).
  • However, most itemized deductions will no longer be allowed. For example, the state and local tax deduction disappears. This is especially significant for taxpayers living in states with high state income tax and homeowners with high property taxes. It appears that individuals who pay for their own health insurance also lose that deduction.
  • Personal exemptions are eliminated. The current personal exemption is $4,050 per person; personal exemptions for a family of four currently would be $16,200.
  • The only deductions explicitly remaining are charitable giving and for home mortgage interest deductions.

Child Tax Credit.

  • The proposal “significantly” increases the Child Tax Credit and increases the income level at which the credit begins phasing out. However, the proposal offers no specifics as to either the amount of the new proposed credit or the income levels that would qualify for the credit.

AMT.

  • The proposal repeals the Alternative Minimum Tax (AMT). This is a confusing tax that generally applies to income levels between roughly $200,000 and $1,000,000.

Estate Tax.

  • The proposal abolishes the existing estate tax, which the plan refers to as “the death tax.” This is a tax that applies after death to the estates of individuals with more than $5.49 million (or double that for a married couple). Abolishing this, as well as what is called a “generation skipping tax” means that larger estates can be inherited tax-free.

AFFECTING BUSINESSES

Corporate Income Tax.

  • The proposal cuts corporate income tax from its current rate of 35{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a} to 20{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a}. The proposal also, without specific details, “will incorporate rules to level the playing field between U.S.-headquartered companies and foreign-headquartered parent companies."

Tax Rate for Small Businesses.

  • The maximum tax rate is proposed at 25{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a} for the business income of small and family owned businesses conducted as sole proprietorships, partnerships. The maximum rate is currently 39.6{3b49b4ed4d41856a63b0e5b93b160690c18e3f65c7a01f32dfdffec145c9167a}.

Capital Investments.

  • Businesses will be able to immediately write off purchases, other than structures. Previously many expenses had to be depreciated over a period of time.                                          

My Two Cents

As an Estate Planning Attorney, obviously the proposed repeal of the estate tax is a huge unknown for me and my clients as we look at long-range planning.

As an individual taxpayer, taking away most itemized deductions hits me in the wallet.

As an attorney who advises small businesses and a small business owner myself, I have to say what the heck? A large corporation’s income will be taxed at a lower rate than the income from my client’s or my own small business.

If you would like a copy of the “Unified Framework For Fixing Our Broken Tax Code” request it by visiting our website https://www.decarlilaw.com/ and use our online contact form. Or, you can message me on my FaceBook page, https://www.facebook.com/DeCarliLaw/?ref=aymt_homepage_panel.

 

For More Information

  • This field is for validation purposes and should be left unchanged.