It’s likely that big tax changes are on the horizon. It’s unknown at this time when these taw lax changes will be effective, but most likely they will be spread out during 2017 and 2018.
Individual Tax Changes
Trump’s plan would simplify the current 7 tax brackets to 3 brackets. Here is the taxable income for each tax bracket as proposed:
|
Tax Rate |
Married filing joint |
Single |
| 12% | Less than $75,000 | Less than $37,500 |
| 25% | $75,000-$225,000 | $37,500-$112,500 |
| 33% | More than $225,000 | More than $112,500 |
Other individual tax changes:
- Personal and dependent exemptions are eliminated.
- Head of household filing status is eliminated.
- Standard deduction is increased to $30,000 for joint filers and $15,000 for single filers (60% of taxpayers who currently itemize will no longer itemize).
- Itemized deductions will be capped at $200,000 for joint filers and $100,000 for single filers.
- Existing capital gains tax rate structure (maximum tax rate of 20%) will be retained “with new tax brackets” – it is not clear what rates will be associated with what new tax brackets.
- Estate tax will be eliminated.
Child and Elder Care:
Eligible taxpayers will get an above-line deduction for child care expenses for children under age 13 and for elder care costs for a dependent parent. There are several limitations on these deductions:
- No deduction is available for taxpayers with “total income” over $500,000 for joint filers and $250,000 for single filers.
- Deduction for child care is limited to four children per taxpayer.
- Stay-at-home parents will get the same deduction for child care as two working parents.
- For elder care, the deduction is capped at $5,000/year, indexed for inflation.
For lower income individuals who would not benefit from the deduction, the plan would offer spending rebates for child care expenses through the Earned Income Tax Credit (EITC). This rebate would be available to joint filers earning $62,400 or less, or single tax payers earning $31,200 or less.
Business Provisions
The plan will lower the business tax rate from a maximum of 35% to 15%. This rate will be available to all businesses, both large and small, that want to retain profits in the business. It appears that even sole proprietors operating Schedule C business can take advantage of the 15% rate although the mechanics of it have not yet been disclosed.
Business Tax Incentives
The plan will raise the IRC Section 179 expensing cap for fixed asset acquisitions during the year from $500,000 to $1 million. The plan eliminates most corporate tax expenditures as deductible items, except for the Research and Development credit. There will also be tax benefits for on-site child care expenses and for businesses that pay a portion of an employee’s child care expenses.
To stay on top of Trump’s tax plan please contact your LSL Advisor.
