Trump’s Tax Plan and How It May Affect You in 2017
The dust has ultimately settled from the somewhat turbulent Presidential Election of 2016 and preparations are fully underway for our new President’s January 20th inauguration. The transition period from President Obama to President Trump is in full swing with staff being nominated and confirmed and policies taking shape. One such plan that taxpayers would do well to pay notice to is the President-Elect’s tax plan. Trump’s plans for both businesses and individuals may involve some considerable shifts and could impact your early 2017 filing decisions. Although tax laws and regulations are in almost constant flux, Trump’s proposals could trigger some significant changes.
One major alteration Trump has proposed is to shift from seven tax brackets to only three tax brackets at 12%, 25% and 33% respectively. While this would present a cutting of taxes for some higher income brackets who had seen rates as high as 43.4% under President Obama, some lower income brackets could actually see their tax rates raised from 10% to 12%. Joint filers without children could also see definitive benefits from Trump’s plan, though large families or single parent filers may not. The President-Elect has also proposed to remove the 3.8% net investment income tax enacted under Obamacare. Thus, the top tax rate would be capped at 33%, and the top capital gains and dividends rate would not exceed 20%. Another proposal of Trump’s plan for individuals would include capping itemized deductions for married couples at $200,000.
On a business level, Trump’s proposals seem even more drastic. The President-Elect has suggested that he would cut all business tax rates to 15%, a drastic shift from the average 35% tax rate for most major corporations. Under President Obama, corporations have been paying a 35% tax rate, and those owning LLC’s, partnerships and S corporations are taxed for their flow-through business income at their respective income rate, though not exceeding 43.4%. Trump’s plan would prove especially beneficial for sole proprietors who had previously fit into the highest tax bracket; these entities could see their tax rates drop by almost 30%.
However, Trump’s tax plan is not presenting significant changes for many IRS tax rules, including the constructive receipt doctrine, which affects both businesses and individuals. Essentially, the IRS can tax you on any income or payment you have the legal right to in 2016, even if you don’t actually receive it until 2017. This includes sales made but not officially received until January, or bonus checks sent out but not cashed until January, something to keep in mind when filing in 2017. In addition to tax cuts, Trump’s plans have the potential to affect the housing market as well. To read more about the President-Elect and the housing market, check out our blog here. Of course, some of Trump’s proposals may not occur, but with a Republican majority in both the House and Senate, some level of tax cuts are likely. However, no matter what changes eventually come into effect, these prospective tax revisions could have significant impacts on 2017 and the years beyond.