By the time you read this article we will be less than two weeks away from Donald Trump’s inauguration. While there has been much said and reported over the last several months about possible changes during his presidency, I have focused on his tax proposals and their potential impact.
It goes without saying that just because it’s reported doesn’t make it law. So many of the things that are being discussed may never become reality. But I do expect the Trump administration to change the tax system in some meaningful ways. This article will highlight some of these ideas.
Business taxes: The most significant changes proposed by our President-Elect will impact business taxes. Trump has indicated that he would like to lower the corporate tax rates to make them comparable to other countries and discourage businesses from relocating operations overseas. His reductions in the corporate tax rates could also stimulate an increase in corporate reinvestment and trigger growth and expansion within the United States. He has proposed a corporate tax rate of 15%, and a repeal of the alternative minimum tax. These two changes would greatly impact the current corporate tax landscape.
His business tax reduction is also being proposed for “pass through entities”, like S-corporations, LLC’s, and partnerships. The specifics of how this will impact pass-through entities are unclear at this time.
Individual taxes: President-Elect Trump has proposed a significant reduction in individual tax brackets similar to the reduction in corporate tax rates. He wants to see a reduction in the top individual tax bracket from around 40% to 33%. In addition to this reduction, he has proposed to eliminate the alternative minimum tax as well as the 3.8% Medicare tax on individuals. The combined effect of these changes could seriously reduce the taxes paid by many taxpayers, and not just the wealthy.
Trump has also stated he would like to increase the standard deduction to $30,000 for individuals and $15,000 for single taxpayers. This is the deduction you can take without claiming any mortgage interest, state and local taxes, or charitable contributions. This change alone could significantly alter future tax planning strategies relating to charitable contributions and financing real estate purchases.
Our future president has also proposed we simplify our tax laws by eliminating personal exemptions. These are the deductions we currently take for ourselves and dependent family members. With this in mind, Margaret Ann and I will probably not be having any more kids!
There is much more to Trump’s tax proposals than what I have covered in this brief article. We will continue to closely monitor the actual changes as they become law and remain focused on how we can apply them to maximize your after-tax income, and improve your personal financial life.