REPUBLICAN president-elect Donald Trump unveiled a new framework for his revised tax plan. Basically, his plan simplifies the tax code – reduce tax rates, simplify provisions, and reform business taxation. His fellow Republicans control both the House and Senate so he’ll probably deliver on most of promised tax reforms that we have not seen since the Ronald Reagan years.
1. Reduce tax brackets on ordinary income from seven, which range from 10 percent to 39.6 percent, to three brackets of 12 percent, 25 percent and 33 percent.
2. Increase the standard deduction to $15,000 for single filers and $30,000 for married filers to replace the current standard deduction ($6,300 for single filers and $12,600 for married filers) and the current personal exemption ($4,050 per individual and dependent).
3. Allow an above-the-line deduction for child care costs up to an amount equal to the average cost of care in your state, allow a tax credit of up to $1,200 for child care expenses to lower-income families and create new savings accounts for care of children or elderly parents.
4. Eliminate the Net Investment Income Tax of an additional 3.8 percent tax on net investment income from dividends, interest and capital gains.
5. Eliminate the federal estate, gift and generation-skipping transfer taxes.
6. Postpone capital gains tax until death with an exemption of $5 million ($10 million for married couples).
7. Eliminate the dreaded Alternative Minimum Tax (AMT) for individuals.
8. Eliminate the Alternative Minimum Tax (AMT) for corporations.
9. Reduce corporate taxes from 35% to 15%. The new rules would also allow pass-through entities, such as sole proprietors, to be taxed at this low rate rather than at the higher personal rate.
10. Reduce the incentive for firms to recharacterize their domestic income as foreign-source to avoid US tax with the large reduction in the corporate tax rate. The lower corporate tax rate would also decrease the incentive for a US corporation to move its tax residence overseas (corporate inversion).
11. Impose a tax on the existing unrepatriated earnings of US firms’ foreign subsidiaries. Earnings held in cash would be taxed at 10 percent and other earnings at 4 percent, with the liability for this one-time tax payable over 10 years.
12. Elect to expense investment in equipment, structures, and inventories, rather than depreciating these purchases over time as current law requires, by both corporations and pass-through businesses.
Of course, there’s a price for all these goodies. These tax cuts would add $6 trillion to the national debt.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].