Whether you’re happy or not about the outcome of Tuesday’s election, now that we know we have Republicans in the White House, both houses of Congress, the governorship and the state legislature, it’s time to start thinking about taxes. It is quite possible that there will be significant changes to federal income and estate taxes for 2017 and possible (though perhaps not until 2018) to Kentucky income and other taxes.
With the potential for lower income tax rates for 2017, more than most years, it’s important to consider accelerating deductions to 2016 and deferring income to 2017. Below are tables showing proposed individual rates the House Republican Tax Plan and Trump’s Tax Plan from the Tax Foundation (see below for links).
Tax Brackets Under Current Law and the House Republican Tax Plan
| Ordinary Income | Capital Gains & Dividends | |||||
|---|---|---|---|---|---|---|
| Current Law | Proposal | Current Law | Proposal | Single | Married Filing Jointly | Head of Household |
| 10% | 12% | 0% | 6% | $0 to $9,275 | $0 to $18,550 | $0 to $13,250 |
| 15% | 12% | 0% | 6% | $9,275 to $37,650 | $18,550 to $75,300 | $13,250 to $50,400 |
| 25% | 25% | 15% | 12.5% | $37,650 to $91,150 | $75,300 to $151,900 | $50,400 to $130,150 |
| 28% | 25% | 15% | 12.5% | $91,150 to $190,150 | $151,900 to $231,450 | $130,150 to $210,800 |
| 33% | 33% | 15% | 16.5% | $190,150 to $413,350 | $231,450 to $413,350 | $210,800 to $413,350 |
| 35% | 33% | 15% | 16.5% | $413,350 to $415,050 | $413,350 to $466,950 | $413,350 to $441,000 |
| 39.6% | 33% | 20% | 16.5% | $415,050+ | $466,950+ | $441,000+ |
Tax Brackets Under the Trump Plan
| Ordinary Income | Capital Gains | Single Filers | Married Filing Jointly |
|---|---|---|---|
| 12% | 0% | $0 to $37,500 | $0 to $75,000 |
| 25% | 15% | $37,500 to $112,500 | $75,000 to $225,000 |
| 33% | 20% | $112,500+ | $225,000+ |
Other plan elements:
- Both plans eliminate the estate and gift taxes and the step-up in basis – the House plan completely eliminates the step-up; the Trump plan disallows a step-up for estates of $10 million or more.
- The House plan eliminates all itemized deductions other than mortgage interest and charitable contributions. The Trump plan caps itemized deductions at $100,000 for single filers and $200,000 for married filers.
- Both plans eliminate the alternative minimum tax.
- The House plan reduces the top corporate rate from 35% to 20%, the Trump plan calls for an even lower 15% maximum rate.
- The House plan allows immediate deduction of the cost of capital investments but disallows the deduction for net interest expense on future loans for all businesses. The Trump plan allows businesses to choose between an immediate deduction for capital items and a deduction for interest paid.
- Both plans eliminate the domestic production deduction and all other business credits except for the R&D credit.
- The House plan taxes business income on a territorial basis rather than a worldwide basis and creates a “deemed” repatriation of currently deferred foreign profits taxed at 8.75% for cash profits and 3.5% on other profits. Trump’s plan proposes a 10% tax.
While we don’t yet know if any of these plans will be enacted or what their final form may be, it’s worth considering the potential impact on your tax bill.
Links to Tax Foundation articles on proposed tax plans:
Contact your Dean Dorton advisor if we can be of assistance.