A Post-Election Analysis: Tax Cut Proposals on the Horizon

As the dust settles from President-elect Donald Trump’s historic victory and the accompanying Republican sweep of the U.S. House and Senate, it is possible Americans could see significant tax cuts as early as 2017. The tax cuts proposed by President-elect Trump are among the largest proposed since the days of President Ronald Reagan. If his tax proposals are passed as originally set forth during the campaign, we can expect to see major changes for individuals and businesses. As proposed, those changes include:

For individual taxpayers:

• Reduce seven federal tax brackets to three. Rates for joint filers would be 12% (less than $75,000), 25% ($75,000 to $225,000) and 33% (over $225,000). Brackets for single filers would be half of these amounts. Currently, the top tax rate is 39.6%.
• Increase the standard deduction from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for joint filers while ending personal exemptions.
• Head-of-household filing status would be eliminated.
• Itemized deductions would be capped at $200,000 for joint filers and $100,000 for single filers.
• Repeal the Affordable Care Act (ACA) and the related 3.8% tax on investment income for higher income taxpayers.
• Repeal the alternative minimum tax and the estate tax.

For business taxpayers:

• Reduce the corporate tax rate from 35% to 15%.
• Extend the 15% corporate rate to pass-throughs (e.g., S corporations, partnerships and LLCs)—but only “small businesses” would enjoy the lower rate. “Large businesses” would be required to be taxed as C corporations to get the lower tax rate. However, no guidance has been provided on what the threshold is for a “large business”.
• Repeal the corporate alternative minimum tax.
• Firms engaged in manufacturing in the U.S. could elect to immediately expense (rather than depreciate) capital investments and deduct interest expense only to the extent of interest income.
• Allow repatriation of corporate profits held offshore at a one-time tax rate of 10%.
• Provide tax benefits for corporations offering on-site childcare and pay part of employees’ child-care costs.

The House has proposed a platform that is similar to the Trump plan. Even though there is significant overlap in the two plans, we have a long way to go in predicting the specifics of the 2017 changes. However, we expect that significant changes are on the way.

Do you have questions about proposed tax legislation or other related issues? Contact a member of the Smith and Howard tax team at 404-874-6244 or fill out our form below.