THE PRESIDENT'S TAX PROPOSAL

As you are no doubt aware, on Wednesday, April 26, President Trump released his plan to address tax reform in 2017. The proposal addresses both individual and business tax reforms and includes, among other things, one of the biggest tax cuts in American history.
Below is a quick summary of the plan:
Individual Tax Reform

• Reduce seven tax brackets into three tax brackets. The current marginal rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% would turn into three rates of 10%, 25%, and 35%. The administration has not yet identified how these rates would apply at certain income levels.
• Repeal the Affordable Care Act's (ACA) 3.8% net investment income tax imposed upon unearned income and gains of high-income taxpayers.
• Double the standard deduction.
• Limit itemized deductions to mortgage interest and charitable contributions.
• Repeal the estate tax and the Alternative Minimum Tax (AMT).
• Provide tax relief for families with child and dependent care expenses. The administration has not yet clarified how this relief will differ from the current expenses under Sec. 21.

Business Tax Reform

• Lower the business tax rate to 15 percent. While the current corporate tax rate is 35 percent, many small businesses pass their income through the individual tax code. The administration has not yet identified any rules which may be established to prevent individuals from creating pass-through entities to avoid being taxed at a higher individual rate, but there would be rules established to prevent this practice from taking place.
• Establish a territorial tax system. However, foreign earned income would generally be excluded from this system.
• Eliminate tax breaks for special interests.
• Establish a "one-time tax" on corporate earnings realized and held overseas (on which tax is deferred).

The one-page proposal provides Congress with an outline to further set the stage for tax reform in 2017. While House Republicans have been deliberating their proposed tax reform "blueprint" from June 2016, Senate Republicans have indicated the upper chamber will also be releasing their own plan.

Turner's Tax Service will keep you informed as this proposal wends its way through the legislative process.