The key points of the plan are below.
- Reduce the number of tax brackets: The plan proposes three tax brackets with rates of 10 percent, 25 percent, and 35 percent. This would reduce the top tax rate from 39.6 percent to 35 percent and the number of tax brackets from seven to three. Income ranges for the three tax brackets are unknown.
- Double the standard deduction: Currently, the standard deduction for individuals is $6,350 and $12,700 for joint filers. The reform proposes a standard deduction increase to $12,700 for individuals and $25,400 for joint filers – allowing taxpayers to deduct this amount in income from their taxes.
- Repeal the Alternative Minimum Tax (AMT): The AMT requires taxpayers that claim large amounts of deductions to calculate their income tax under the normal tax rate and the AMT rate and pay the higher amount. Taxpayers that have been unable to itemize deductions may benefit from this repeal, as the AMT was not adjusted for inflation throughout the years. This caused more taxpayers to be affected by the AMT, although it was intended to apply to the wealthier US taxpayers.
- Repeal the 3.8 percent Net Investment Income Tax (NIIT): The NIIT affects the income tax of individuals, estates and trusts that have investment income over a certain threshold.
- Repeal the estate tax: The reform proposes eliminating the taxes on assets that are transferred via a will after someone dies. Prior repeals of the estate tax have been temporary – continue to plan for estate tax.
- Provide tax relief for families with child and dependent care expenses
- Retain the home ownership and charitable gift tax deductions
- Reduce the corporate tax rate: The plan proposes reducing the corporate tax rate from 35 percent to 15 percent.
- Allow pass-through corporate tax rate for business owners: Business owners that receive income from business operations would be taxed at the reduced corporate tax rate of 15 percent rather than at the individual income tax rates. Business owners of pass-through entities (S-Corporations, Partnerships and LLCs) would be affected.
- Implement a reduced one-time repatriation tax: The plan proposes reducing the current repatriation tax to allow US companies to bring their money back to the US under a lower, one-time tax. A new repatriation tax rate has not been announced.
- Eliminate tax breaks for special interests
At this point, the proposed 2017 tax reform has only been announced. We will continue to monitor the progress of this tax plan and additional proposed tax reforms, and keep you informed of any changes that may affect you and your business.
To learn more, contact your Beene Garter Professional at 616.235.5200.
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