What’s in Trump’s Proposed Tax Overhaul?
After several months of discussion and preparation, on Wednesday, September 27, the Trump Administration released their “unified framework” for tax reform. While the nine-page document offers a higher level of detail than past tax reform documents, certain details remain unknown and speculative.
The framework pushes many familiar themes that have been prominent in the Trump Administration, however, it is important to remember that the framework in its current state is a proposal and can therefore change drastically after further deliberation.
Below are the highlights of the framework as currently proposed for individuals, businesses and international taxation.
- Reduce the current seven tax brackets to three brackets of 12%, 25% and 35%, with the possibility of an additional top bracket for the highest-income taxpayers
- Increase the standard deduction, eliminate personal exemptions, and add additional standard deductions for older/blind taxpayers
- “Significantly increase” the Child Tax Credit and provide non-child credit, as well as increase the income levels at which the credit would phase out
- Repeal alternative tax minimum (AMT)
- Eliminate “numerous” other deductions, exemptions and credits, with the exception of those that encourage work, higher education and retirement security
- Eliminate “most” itemized deductions (including the deduction for state and local income taxes), but retain deductions for home mortgage interest and charitable contributions
- Repeal estate and generation-skipping transfer taxes
- Set a top tax rate of 25% for small pass-through partnerships and S-corporation entities, including “small” and family-owned businesses operating as sole proprietorships
- Adopt measures (unspecified) to prevent characterization of personal income into business income
- Set a top tax rate of 20% for C-corporations and eliminate corporate AMT
- “Partially limit” the deduction for net interest deductions incurred by C-corporations
- Allow immediate, full expensing of new investments in depreciable assets (other than structures) made after September 27, 2017 for at least five years
- Repeal most deductions and credits, such as the domestic production activities deduction (DPAD), but retain research and low-income housing tax credits
- “Modernize” certain industries governed by special tax rules to minimize tax avoidance
- Provide 100% exemption for dividends from foreign subsidiaries, defined as companies with at least 10% owned by a U.S. company
- Treat accumulated offshore profits as repatriated, leading to a one-time “low” rate tax payable over five years
- Move to a territorial tax system that would tax accumulated foreign earnings held in illiquid assets at a lower rate than earnings held in cash or cash equivalents
There are several concepts introduced in earlier reform proposals that are notably excluded from this “Unified Framework,” including:
- Border-Adjustment Tax (BAT)
- Reform for carried interest changes
- Repeal Net Investment Income Tax (3.8% tax on net investment income tax)
- Capital gains tax rates
- Basis adjustments on inheritance
While this proposed framework is considered the largest U.S. tax overhaul in decades, there remains a lot that can change. If you have questions about the Trump Administration’s proposal, or want to learn more about what comes next, we are here to help. Contact one of our tax specialists at 925.271.8700 or email@example.com.