Trump’s Win & What That Means for Taxpayers

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With President-Elect Donald Trump getting ready to take office in January of 2017, we are bound to see some changes in tax legislation.  I am sharing the information below from Mark Luscombe, Principal Federal Tax Analyst at WK TAA on what individuals and businesses can expect. It’s a good comprehensive discussion.  I play around but as a CPA, I am also about tax law and my coins :-).

What are some of the key components of President-elect Trump’s tax proposals?
President-elect Trump has focused his tax proposals on lowering both individual and business tax rates in order to try to stimulate economic growth.  He would reduce individual tax rates to three rates, 12, 25 and 33 percent, down from a current top rate of 39.6 percent. He would also significantly increase the standard deduction.

He has proposed repeal of the federal estate and gift tax, while disallowing stepped-up basis on gains in excess of $10 million, with exemptions for small businesses and family farms.

He has also proposed to eliminate both the individual and corporate alternative minimum tax.

President-elect Trump’s proposal to repeal the Affordable Care Act would also involve repeal of the taxes enacted as part of the ACA, including the 3.8 percent tax on net investment income.

Trump has also proposed a package of tax provisions to assist taxpayers with child care. He would create a new above-the-line deduction for child and dependent care expenses. He would also increase the Earned Income Tax Credit for working parents through a spending rebate. In addition, he has proposed the creation of Dependent CARE Savings Accounts, with individual contributions matched by a 50 percent government contribution.

On the other hand, he would put a cap on the amount of itemized deductions that higher income taxpayers could claim. He would also eliminate exemptions and the head of household filing status.

That’s a good overview of individuals.  How will this affect businesses?
On the business side, President-elect Trump has proposed to lower the top corporate tax rate to 15 percent from 35 percent and an election to apply that tax rate to all business income, such as business income from pass-through entities or sole proprietorships. The campaign has indicated that they would come up with proposals to prevent the conversion of compensation income into business income and that there would be a new tax on distributions from pass-through businesses similar to the tax on corporate dividends.

President-elect Trump has also proposed taxing the carried interest of hedge fund managers at ordinary income rates rather than capital gain rates.

To help pay for the lower business tax rates, unspecified “corporate tax expenditures” would be eliminated, except that the Research and Development credit was identified as one that would be preserved.

Trump has proposed eliminating the deduction of interest expenses. Businesses would instead be able to immediately deduct all new investments in the business.

In order to spur infrastructure spending, he has proposed tax incentives to encourage public-private partnerships to build infrastructure.

In support of his child care initiatives on the individual side, he has also proposed to increase the annual cap for the business tax credit for on-site childcare, with a reduced recapture period.

For small businesses, President-elect Trump has proposed doubling the small business expense election limit.

With respect to international taxes, he has proposed a deemed repatriation of corporate profits held offshore at a tax rate of 10 percent.

How likely is he to get his tax policy implemented?
President-elect Trump modified some of his proposals to match more closely tax reform proposals that had been developed by the Republicans in Congress. His proposals still are projected to produce greater deficits than many Republicans in Congress may support. Many of his proposals may receive general Republican Congressional support with modifications to try to make them more revenue neutral. In the Senate especially, he will also still have to deal with Democrats who have very different policy priorities.

If his tax proposals are implemented, what is the timing?
President-elect Trump has said that his plans for the first 100 days in office include working on four key elements of his tax proposals:

  1. Middle class tax relief and simplification,
  2. Affordable childcare and eldercare,
  3. Repeal and replace the Affordable Care Act, and
  4. Tax incentives for infrastructure development.

This will not be simple to do, since even many Republicans in Congress want to address tax relief as part of overall tax reform, and the Democrats will fight to preserve the Affordable Care Act. Affordable childcare and eldercare and tax incentives for infrastructure development may be easier to get through quickly.

Do you think there is anything missing from his tax proposals?
As is generally the case with the tax proposals of presidential candidates, the proposals are announced as general concepts without a lot of details. It is not until an effort is made to put those proposals into legislative language that we start to get the details. There are a number of unanswered questions about just how some of his proposals would be implemented. So, what is missing is the details.

Aside from what is in President-elect Trump’s tax proposals, what other tax legislation is being considered by Congress at year-end or early next year?
Well, there is a package of tax provisions that expire at the end of the 2016 that Congress may try to extend. For individuals, these include tax breaks such as the college tuition and fees deduction, the mortgage debt exclusion, the mortgage interest deduction, and the credit for residential energy efficient improvements, such as insulation, door and windows, and certain home systems.

Also in the list of tax legislation before Congress is a package of retirement savings enhancements, a bill to prevent stock options from being taxed until the stock is sold, a limit on IRS asset seizure authority, an exclusion from tax for qualified student loan discharges for students who have died or suffered a permanent disability, tax breaks for 2016 flooding and hurricane victims, and a bill permitting employers to continue to offer health reimbursement arrangements to their employees without penalty.

What kind of global impact can we expect from potential tax legislation in the next year?
Congress is likely to consider fundamental tax reform in 2017, including international tax reform, with implementation of Base Erosion/Profit Shifting (or BEPS) legislation. Many of our trading partners are also implementing BEPS legislation as well, and that could have a significant impact on international tax compliance over the next few years. Efforts at reform of the US international tax system could put US multinational companies on a more equal tax footing with their competitors in other developed countries. Also, many tax proposals that have the effect of enhancing the US economy would also tend to have a beneficial effect on the global economy as well.

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