President Trump outlined his plan for a massive overhaul of the U.S. tax code on Wednesday. The nine-page document unveiled by the GOP includes tax relief for the middle class and small businesses, broadening the tax base, and plans to grow the economy. However, it does not provide a lot of details on how the sweeping cuts would be funded.
Here’s a look at the highlights of the Tax Reform proposal. But remember, this is only a framework for proposed legislation to come.
Tax Reform for Individuals
- Shrinks the current seven tax brackets into three – 12%, 25%, and 35%
- No indication of changes to either the long-term capital gain rate or the 3.8% net investment income (NII) tax
- Doubles the standard deduction – $24,000 for married taxpayers filing jointly, and $12,000 for single filers
- Increases Child Tax Credit from $1,000 to an unspecified amount – adds $500 credit for non-child dependents such as the elderly
- Eliminates estate tax (death and transfer tax) and alternative minimum tax (AMT)
- No indication of changes to the gift tax
Tax Reform for Businesses
- Reduces corporate tax rate to 20%
- Partially limits deductions for net interest expenses incurred by C-corporations
- Pass-through income from limited liability companies, partnerships and S-corporations taxed at a flat rate of 25%
- Allows businesses to expense capital investments for at least 5 years
- Eliminates the domestic production activities deduction (DPAD)
- Ends incentive for corporations to offshore jobs and keep capital overseas by exempting dividends paid by foreign subsidiaries from U.S. tax
The plan was negotiated by the so-called “Big Six,” Republican leaders from Congress’s tax-writing committees, along with officials from the Trump administration and was designed to serve as the framework for lawmakers to develop legislation.
Any changes to the tax law will need the approval of Congress so it remains to be seen which of these proposals will become law. However, if you would like to discuss how any of these would impact you, please feel free to contact your MarksNelson professional at 816-743-7700.