November 14, 2016

Trump Presidency Signals Tax Changes

“How wonderful it is to be an American.  We have known the best of times and the worst of times.”  Maya Angelou

Donald J. Trump has been elected the 45th President of the United States and Republicans retain control over the House and Senate.  Despite the pre-election infighting and divisiveness, fueled in part by bitter disagreements on whether or not to support the now-elected Trump, there are strong bipartisan alliances when it comes to a complete overhaul of the Federal Tax Code.  Both the Trump administration and House GOP have plans to:

  • Lower income tax rates for individuals and businesses
  • Increase the standard deduction to single and married joint filers, and
  • Eliminate the Federal gift and estate tax.

Currently, there are seven tax brackets for individuals, with ordinary income tax rates extending from 10 percent to 39.6 percent, and preferential capital gains tax ranging from 15 percent to 20 percent, plus an additional 3.8 percent net investment income tax (NIIT) to high-income taxpayers, which was signed into law in 2012 under the Affordable Care Act, commonly known as Obamacare.  President-elect Trump’s revised tax proposal would reduce income tax rates for most taxpayers by consolidating the current seven tax brackets into three, as does The House GOP’s Tax Plan; however Trump’s Plan would maintain current capital gains tax rates, where the GOP proposes to replace the current capital gains tax rates with a 50 percent income tax deduction for net capital gains, dividends and interest income. Here are a few articles with more information on the plans:

What does the Trump plan mean for your tax bill

What does the House plan mean for your tax bill

How Trump’s plan may impact your returns

In an effort to boost the economy, Trump and the House GOP also have plans to lessen tax burdens of U.S. companies.  Trump’s Tax Plan includes lower corporate income tax rates and a special corporate tax repatriation holiday rate, whereby U.S. corporations with profits held offshore would be able to pay a tax rate of just 10 percent on that income in order to bring it back into the United States.  Under current tax law, companies are not subject to U.S. tax, now at 35 percent, on earnings derived in foreign countries until they are repatriated.  The House GOP Plan similarly offers reduced corporate income tax rates, along with repatriated tax breaks to U.S. companies that send their foreign earnings back to the U.S.

The Trump Administration Tax Plan and House GOP Tax Plan both propose to eliminate the alternative minimum tax (AMT) to individuals and corporations and repeal the Affordable Care Act, which includes the 3.8 percent NIIT and additional 0.9 percent Medicare tax.  Trump’s plan only mentions repealing the 3.8 percent NIIT at this time; however, he proposed throughout his campaign to “repeal and replace Obamacare,” the Affordable Care Act entirely, including all associated taxes.

We don’t know when and how all of this will unfold, but our advisors at Maddox Thomson are carefully monitoring the potential changes. As always, our advisors stand ready to answer your questions and guide you through the proposed reforms.