TAX ALERT (USA) – US Tax Reform Proposal

On Wednesday, September 27, 2017, President Donald Trump delivered his long-awaited tax reform proposal in Indianapolis, Indiana. While the plan lacks technical details, it lays out a unified framework for tax reform and a simplification of the tax code.

Tax Reform Proposals for Individuals

  • Extension of the SR&ED tax credit to August 21, 2022.
  • Increase in the standard deduction to $24,000 (from $12,700) for married taxpayers filing jointly, to $18,000 (from $9,350) for head of household filers, and to $12,000 (from $6,350) for single filers.
  • Consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%. The framework does not indicate at what income levels each bracket starts or ends and alludes to a possible additional top rate for highest-income taxpayers. The framework also indicates that the brackets may be indexed for inflation.
  • Repeal of personal exemptions for dependents and significant increases in the Child Tax Credit. The framework is silent on the actual dollar amount of the increase; however, the first $1,000 will continue to be refundable. The framework also proposes to increase the level where the Child Tax Credit begins to phase out and includes a provision for a $500 non-refundable tax credit to individuals caring for a non-child dependent.
  • Repeal of individual alternative minimum tax.
  • Elimination of most itemized deductions. The framework does maintain tax incentives for home mortgage interest and charitable contributions.
  • Repeal of the death tax (estate tax) and the generation-skipping transfer tax.

Tax Reform Proposals for Businesses

  • Reduction of the tax rate for business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%.
  • Reduction of the top corporate tax rate from 35% to 20%. This would lower the U.S. corporate tax rate to below the average 22.5% of the industrialized world.
  • Elimination of corporate alternative minimum tax.
  • Immediate expensing of the cost of new investments in depreciable assets (other than structures) made after September 27, 2017 for a period of at least 5 years.
  • Partial limitations to the deduction for net interest expense incurred by C corporations.
  • Elimination of the deduction under Internal Revenue Code ยง199 for domestic production (i.e. DPAD).
  • Elimination of other unspecified special exclusions and deductions although the framework does specifically preserve the research and development and low-income housing credits.
  • Elimination of special tax treatment for certain unspecified industries and sectors.
  • A 100% exemption for dividends received from a foreign subsidiary in which a U.S. parent owns at least 10%.
  • One-time reduced rates on foreign profits of U.S. multinational corporations as the earnings are issued back into the U.S.

The full frameworks is available suing the following link:

https://www.treasury.gov/press-center/press-releases/Documents/Tax-Framework.pdf

To learn more or if you have any questions regarding the above information, please contact your Facet Advisors professional, or call us at 604-534-3004.