What the Election Means for Your Taxes

One heavily discussed field of policy during campaign was the tax code. Since Republicans retained control of both the House and the Senate, there is a strong chance that changes to the taxes you pay are on the way. Here is what to look for.

Individual Tax Rates and Capital Gains Taxes

The president-elect’s proposal calls to reduce the number of tax brackets from seven to three, with new rates of 12%, 25%, and 33%. Currently the seven individual rates are 10%, 15%, 28%, 33%, 35%, and 36.9%. His plan for long-term capital gains would keep rates at current levels: 0%, 15%, and 20%.

His plan also calls for eliminating the head of household filing status, which allows unmarried individuals with dependents, like single parents, to pay a bit less than other individual filers.

Estate Tax

The president-elect is in favor of abolishing the estate tax. The estate tax does not generate much revenue compared to other tax policies, but there will be a heated debate surrounding the equity of abolishing it. Trump’s plan would subject accrued capital gains that are outstanding at death to the capital gains tax, but the first $10 million would be exempt.

Itemized and Standard Deductions and Personal Exemptions

Itemized deductions would be capped at $200,000 for married couples who file jointly and at $100,000 for unmarried filers. The standard deduction for joint filers would grow from $12,700 to $30,000 in 2017. For single people, the standard deduction would also increase, up to $15,000 from $6,350.

Both the personal and dependent exemption deductions would be eliminated.

Taxes for Businesses

The corporate tax rate would be cut from its current rate of 35% to 15%, but tax deferral on overseas profits would be eliminated. Trump’s plan would allow repatriation of corporate cash held overseas, subject to a one-time tax rate of 10%. There will be a hotly contested battle in Congress on the corporate tax rate.

The same 15% tax rate would apply to sole proprietorships and pass-through entities including S-corps, LLCs, and partnerships. These changes would substantially reduce federal tax revenues, but would also likely spark businesses to make more new hires. Trump has said he supports closing most corporate loopholes, including unlimited deductions for interest expense and the variety of write-offs and credits that some criticize as corporate welfare. It would also, however, allow manufacturers to write off capital investments instead of deducting interest expense. Corporate lobbyists will not quietly allow loopholes to be eliminated, and Trump has claimed he is willing to take on special interest groups.

Affordable Care Act Taxes

For months, Trump has said he will repeal Obamacare and the tax increases and employer penalties it imposed, including the 3.8% Medicare surtax on net investment income. Republican House Leadership, including current Speaker Paul Ryan, has been working on replacement legislation.

Tax and Estate Planning with Cohen & Burnett

As the Obama administration draws to a close and the Trump administration moves into the Oval Office, changes to the tax code are one of the few near-certainties. The experienced team at Cohen & Burnett will help you navigate the landscape and make the best decisions for the financial future of your family. For more information on our specialized expertise in the areas of estate, business and tax planning, and estate and trust administration, please visit our website.

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