Regardless of what side of the political spectrum you fall on — or whether you’d prefer to flee the spectrum altogether — this much is true of any proposed tax plan, regardless of what administration takes the credit (or the heat) for it: until it officially passes and becomes legislation, consider everything to be written in pencil, since it’s not a question of if things will change, but a matter of when they’ll change and to what extent.
Yet with this being said, all government proposals — for better and for worse — lay the groundwork and set the framework for the furious political horse trading that follow. With this in mind, and realizing once again that things are certainly going to change over the coming months and probably years, here are the key highlights of the Trump Administration’s recently-proposed tax plan as it would impact individual filers:
Income Tax Brackets
- The number of tax brackets would be reduced from 7 to 3.
- The top income bracket would be taxed at a rate of 35 percent (currently 39.6 percent).
- The middle income bracket would be taxed at a rate of 25 percent (currently 28 percent).
- The low income bracket would be taxed at a rate of 12 percent (currently 15 percent).
- The income ranges for the proposed new tax brackets have not yet been specified.
- Itemized deductions — except for those on mortgage interest and charitable donations — would be eliminated.
- Deductions for state and local taxes would be eliminated.
- Personal exceptions would be eliminated (this currently allows taxpayers to deduct $4,050 from income for each person claimed on their tax return).
- The standard deduction available to all taxpayers would double from $12,000 to $24,000 for married and joint filers, and almost double from $6,300 for $12,000 for single filers.
- There would be a $5,000 deduction for eligible elder care costs.
- The Child Tax Credit would increase by an as yet unspecified amount.
- The so-called “marriage penalty” that reduces the eligible Child Tax Credit if a couple marries (by lowering the threshold) would be eliminated.
- The estate tax would be eliminated.
- The generation-skipping transfer tax would be eliminated.
- The Alternative Minimum Tax (AMT) would be eliminated.
- The inheritance tax for capital gains would be excluded if heirs do not sell the asset(s). However, they would still be entitled to borrow against the asset(s).
Yet again, it bears repeating: there is a 99 percent chance (or better yet, make that 100 percent) that some or possibly all of these proposed changes to the tax law will, themselves, be changed. We’re a long way from the finish line, and as we all know, “speed to market” is not in Washington DC’s playbook.
For the foreseeable future, the same standard wisdom applies: if you have a complex tax return, then work with a CPA to make sure that you’re in full compliance, and that you’re maximizing your allowable deductions. And of course, if you’re being examined at or audited by the IRS, or you want to proactively tell the IRS about some offshore accounts, undeclared income, excessive deductions and that kind of thing, seek the advice of a tax lawyer now — not later.
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