Trump's Yuge Tax Plan - 5 Takeaways
posted on Fri, Oct 06, 2017
A couple weeks ago President Trump gave a speech where he outlined his new tax plan. The key points are detailed below. I apologize ahead of time for any over the top tax jargon, but I promise to do my best to keep it simple!
Income Tax Rates – We currently have seven income tax brackets ranging from 10% to 39.6%. The proposed tax plan reduces that to three (12%, 25% and 35%). Congress will have the option to add a 4th bracket. Since we currently don’t have any clarity on the income thresholds for each bracket, it is hard to evaluate how it will impact your tax situation.
Standard Deduction – You currently have the option to reduce your taxable income by a standard deduction or you can itemize your deductions. The proposal is to double the current standard deduction. This will obviously help people who have historically taken the standard deduction, but for individuals and families who have been itemizing (most likely due to home ownership) it may have no impact.
Tax Credits – In the current tax code there is a $1,000 per child tax credit available to families that make less than $110,000 per year. The proposal from President Trump is going to increase that credit, but no specific amount was given. They are also looking at adding a $500 tax credit for any non-child dependents you have living in your house.
Passthrough Entities – Currently, if you have a passthrough entity (S-Corporation, Partnership or Sole Proprietorship), the income is taxed at your personal income tax rate. The new proposal caps that rate at 25%. The idea is to free up cash flow for small businesses to expand.
Corporate Tax Rates – For C-Corporations the proposal is to reduce the tax rate from 35% to 20%. This does not apply to most people reading this post, but it could potentially offer a tax planning opportunity to change your S-Corporation status to a C-Corporation depending on your circumstance.
These proposals are not set in stone, but it offers a solid frame work for what the new tax plan will look like as it works its way through Congress.
Please feel free to contact me anytime to discuss this topic or any other in more detail.