Trump Tax Plan to Simplify Tax Code and Lower Taxes?

Trump Tax Plan to Simplify Tax Code and Lower Taxes?
December 15, 2016 John Mohr

The incoming administration of Donald J Trump has promised to simplify the tax code and reduce taxation for many individuals and corporations. Over the primary season he floated two strategies regarding personal taxation, and during the election on September 13, 2016, a third one. An additional proposal would reduce corporate taxation from 35% to 15%. At this point, it is conceivable that the Republican-controlled Congress could pass legislation in time for the IRS to promulgate the regulations with effect for the 2017 tax year.

taxplanningPresident-elect Trump’s current personal tax plan shifts a greater burden of tax on higher income earners regardless of whether the income is earned or passive. Elimination of exemptions and changes to the standard and itemized deductions extend considerable tax reduction opportunities to the lower and middle class.

 

Income Tax

Rate

Long Term Cap Gains / Dividends Rate

Single Filers

Married Filers

12%

 

12%

 

$0 to $37,500

 

$0 to $75,000

 

25%

 

25%

 

$37,501 to $112,500 $75,001 to $225,000
33%

 

33%

 

$112,501 and up $225,001 and up

Thus, the most recent Trump Tax Plan proposes to:

  1. reduce the current seven brackets to three;
  2. reduce the highest tax rate from 39.6% to 33%;
  3. unify the long-term capital gains rate with the marginal tax rate – eliminating the preference for taxpayers who derive significant proportion of income from capital;
  4. eliminate the alternative minimum tax;
  5. eliminate head of household filing status and lifts tax brackets for married persons to twice that of single filers;
  6. Eliminate the 3.8% net investment tax on passive income used to fund ACA
  7. Raise the standard deduction for Married-Joint filers will rise from $12,600 to $30,000, and for Single filers will be set at $15,000.
  8. Eliminate personal exemptions and caps itemized deductions for Married-Joint filers at $200,000 and for Single filers at $100,000.

There has also been talk of removing the shared responsibility requirement and penalty on healthcare and making all health insurance premia and bonified health insurance expenses settled through health savings plans (HSA) tax-deductible. This could result in significant tax savings for those with high medical bills.

This plan suggests that families staying together will enjoy better terms than those splitting up, and catastrophic health insurance costs might easily reduce tax to as low as zero, taxpayers deriving proportionately more income from passive sources will no longer enjoy preferential tax treatment.

At this point it is unclear whether the Trump administration will follow through on modification or elimination of Citizenship Based Taxation (CBT). The U.S. CBT regime forces Americans outside the United States to file tax returns each year with the IRS regardless of whether they have U.S. source income or not. The Organization for Economic Cooperation and Development (OECD) is set to enact a multilateral agreement to provide information sharing between member countries that mirror the current U.S. bilateral FATCA regime on January 1, 2017.

I will continue to update you on these developments as they hit the press.

For more information or assistance with this and other Czech/U.S. tax and reporting issues, please contact me directly. Please consider friending me on FaceBook or linking with me on Linked-In.