Trump's Tax Plan
The tax plan proposed by President Trump reduces the number of tax brackets from seven (rates between 10% and 39.6%) to three (10%, 25% and 35%). We don't know to what income each of the three tax rates will apply. We do know that those who are married and earn less than $50,000 or single and earn less than $25,000 will NOT owe any tax. This change will provide that almost 74 million households will not pay income tax. It is estimated that there are approximately 130 million households in the United States; therefore, over 50% of households will not pay income tax.
The standard deduction is doubled, but some deductions and credits are eliminated. This tax advantage may signal the elimination of personal exemptions and retirement-based deductions for contributions to 401(k) or IRAs. The only itemized deductions that we know survive elimination are the home mortgage interest deduction and charitable contributions.
Families should receive benefits for child and dependent care expenses, although the details are unknown. The alternative minimum tax (AMT) is repealed. It was enacted back in 1969 to catch wealthy individuals who used deductions and credits to escape taxation. Unfortunately, the AMT may apply to individuals earning $54,300 and couples filing jointly with more than $84,500. The AMT is a complicated albatross for taxpayers whose repeal is long overdue. the net investment income ta is also repealed by Trump's tax plan. This tax of 3.8% applied to investment income was passed along with Obamacare. The estate tax is also repealed.
The tax rate on corporations and partnerships, proprietorships (pass-through businesses) are set at 15%. There is also a tax holiday for foreign earnings accumulated under the old tax system. This holiday would provide companies with incentive to bring cash/capital back to the United States. The lowered tax rate for corporations and pass-through entities (partnerships and LLCs) will offer tax planning opportunities for taxpayers.
Bowman Law Firm