On September 27th, President Donald Trump released the “Unified Framework for Fixing our Broken Tax Code.” The plan is very similar to the list of changes that were released back in April.
For individuals, the number of tax brackets would drop from seven to three: 12%, 25%, and 35%. The proposal drops the highest marginal tax rate from 39.6% to 35%. The standard deduction would increase to $12,000 for individuals and $24,000 for married taxpayers. It’s important to note the framework says there is a possible additional top rate for the highest-income taxpayers. We’ll have to wait and see how that plays out.
The proposal calls for the elimination of most itemized deductions, but does leave deductions for home mortgage interest and charitable contributions. The plan removes the federal estate tax, the generation-skipping tax and the alternative minimum tax (AMT).
Corporations would also see a tax rate reduction from 35% to 20%, with an aim to eliminate the corporate alternative minimum tax. The proposal looks to move the tax rate on S-Corporations, LLCs and sole proprietorships flow-through business income to a top rate of 25%. This is a complicated issue and we will be watching for details. For the next five years, businesses would be allowed to fully expense the cost of depreciable assets. There isn’t detail on any useful life limitations so we will be watching this carefully as well. Also proposed is a partial limitation on deductions for net interest expense incurred by C-Corporations. Trump is proposing a 100% exemption for dividends from foreign subsidiaries in which the U.S. parent owns at least a 10% stake.
There are still a lot of details for Congress to solidify. This plan is in-line with previous proposals we have seen from Washington. We will continue to watch the tax reform and update you as things move forward. To read the entire proposal, click here for a pdf posted on the treasury.gov website.
To further discuss this or other tax issues, please contact your engagement team at DGC or Erica Nadeau, CPA, at 781-937-5311/ email@example.com or Joel Rothenberg, CPA, JD, LLM at 781-937-5135/ firstname.lastname@example.org.