New Administration - Possible Tax Changes to Come
The election of a new president along with Republican control of the House and Senate will likely bring changes to tax laws for individuals and businesses. At this point we do not know what will and will not happen but we want to make you aware of some of the possibilities.
- Individual tax rates: A compression of brackets (from 7 to 3): 12%, 25% and 33%.
- Capital Gains tax rates would stay at 15%, with a maximum rate at 20%. The House plan would lower the top rate on capital gains, interest and dividends to 16.5%.
- Repeal of Net Investment Income Tax (3.8% additional tax on investment income).
- Repeal of the Alternative Minimum Tax.
- The standard deduction increases to $30,000 for married filing jointly ($15,000 for single taxpayers).
- Head of Household filing status and personal exemptions would be eliminated.
- Itemized deductions would be capped at $200,000 for married filing jointly ($100,000 for single filers).The House proposes to eliminateall itemized deductions except mortgage interest and charitable donations.
- Repeal and potential replacement of the Affordable Care Act (“Obamacare”).
- Possible repeal of the estate tax, replacing it with a capital gains tax on property held at death over $10 million. It is unclear if these assets would be taxed on appreciation at death or at subsequent sale. Also, to prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relative will be disallowed.
- Tax rates would be lowered to 15% (The House proposes a 20% rate).
- Businesses that now report their profits on their owners’ individual returns (pass-through entities such as S corporations and Partnerhsips) would get the 15% rate on money left in the business and would likely pay a second layer when the owner takes money out of the business. (The House proposes a 25% rate on all pass-through business income.)
- The corporate AMT would be eliminated.
- Most expenditures would be eliminated, except those for R&D credit.
- There would be a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%. This is meant as incentive to bring companies back onshore along with the new lowered business tax rate and would help fund some of the tax rate cuts proposed by Trump.
Individuals may want to consult their tax professional regarding income and deduction options that are appropriate to their specific tax circumstance.
For businesses, the restriction on deductions may prompt accelerating deductions into 2016. We need to wait and see where the rates come out for C corporations and pass-through entities. It seems certain that tax changes will be coming, but the specifics and timing have yet to be determined.
We hope you enjoy this issue. As always, we welcome your comments. Email firstname.lastname@example.org with your feedback.
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