On September 27, 2017, the Trump Administration released its proposed tax reform plan. Some of these tax reform matters will affect individuals and some will affect businesses. This is the first large tax reform proposal since the Tax Reform Act of 1986 was passed. In the 1986 Tax Reform Act, a number of tax rate reductions were implemented for individuals. Even though the tax rate reductions reduced income for the government, this loss of income was made up by the Tax Reform Act of 1986 eliminating various tax shelters and no longer allowing credit card interest to be deductible. The 2017 Tax Reform Act does not have those types of loopholes available to be eliminated to reduce the revenue loss to the government due to the reduction in rates. Thus, opponents of the Trump tax reform plan will argue that the government cannot afford to reduce rates due to significant revenue loss with no opportunity for a corresponding offset like the ones existed in 1986. We will wait to see how these tax reform matters proceed through Congress. The following are some highlights of Trump’s proposed tax reform matters:
- The plan would be to create three individual income tax brackets, such as a 12% bracket, a 25% bracket, and a 35% bracket. We currently have seven tax individual income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%;
- The corporate tax rate would be reduced from 35% to 20%;
- The alternative minimum tax for corporations and individuals would be eliminated;
- The top income tax rate for certain flow-through entities, such as limited liability companies and S corporations, would be 25% instead of the current individual income tax rates;
- The standard deduction would be increased to $12,000 for single taxpayers and $24,000 for married couples; and
- The federal estate tax would be repealed. The estate tax is currently 40% on any assets an individual passes away with over and above $5,490,000.
Since Trump’s proposed tax reform plan is still in its early stages of the process, a number of provisions will change between now and the time it becomes law, if it does in fact become law. Please continue to follow along as these proposed tax reform matters make their way through Congress.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.