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Post-Election Tax Update

January 13, 2017

On January 20, 2017, Republican Donald Trump will become the 45th President of the United States. President-elect Trump will take office with a Republican majority in both the House and Senate, which has far-reaching implications on possible amendments to the U.S. tax code.

President-elect Trump’s tax plan has many similarities to the House Republican’s “A Better Way” plan, which makes significant tax legislation in 2017 highly probable.

Here, in brief, are some of the key elements of President-elect Trump’s tax proposals:

Individual income taxes: During the campaign, President-elect Trump proposed merging current tax rates. This includes:

  • Merging rates of 10 and 15 percent into a new 12 percent bracket, estimated to apply to taxable income up to $75,000.

  • Merging rates of 25 and 28 percent into a 25 percent bracket, estimated for income between $75,000–$225,000.

  • Merging rates of 33, 35 and 39.6 percent into a 33 percent bracket, presumed to apply to incomes above $225,000.

  • Low-income persons would have a zero percent rate.

Capital Gains and Dividend Rates: These rate structures, based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed income tax bracket levels.

Alternative Minimum Tax (AMT): President-elect Trump has proposed repealing the AMT. He has also proposed repealing the federal estate and gift tax, which currently starts for estates valued at $5.490 million for 2017 (essentially double at $10.980 million for married individuals). Trump, however, also proposed a “carryover basis” rule for inherited stock and estate assets of more than $10 million. This proposal has met opposition from members of both parties.

Health Care: The Affordable Care Act (ACA) created a number of new taxes that impact individuals and businesses. President-elect Trump made repeal of the ACA one of the centerpieces of his campaign. However, at the time of writing this update, it remains unclear whether he will pursue a complete repeal of the law or seek to enact a slate of amendments.

Business Taxation: President-elect Trump has proposed a doubling of the Code Sec. 179 small business expensing election to $1 million, as well as immediate deduction of all new investments in a business. Significantly, he has proposed a reduction in the corporate tax rate from 35 percent to 15 percent, and has also proposed sharing that rate with owners of “pass through” entities (sole proprietorships, partnerships and S corporations), but only for profits that are put back into the business. A one-time reduced rate has also been proposed to incentivize companies to repatriate earnings of foreign subsidiaries that are held offshore. Many more details about these proposals are expected to emerge.

Year-end 2016: Now that 2016 has drawn to a close, Congress is expected to take up tax legislation in their lame duck session. What tax legislation Congress will consider is unknown. Some possible contenders include renewal of some expiring tax extenders, especially energy extenders; enhanced retirement savings for individuals; and measures to help agriculture and small businesses. If signed into law, some of these initiatives may impact year-end tax planning. In addition, any tax code changes enacted in 2017 will likely be made retroactive to January 1, 2017. Our office will be ready to assist you in reviewing your tax planning as necessary.

The information we currently have about President-elect Trump’s tax proposals is based largely on statements issued during the campaign. More details will most certainly emerge in the coming month and some significant changes may be possible. We have prepared this digest to give you the best, most concise snapshot of where things stand currently, and we’ll keep you updated as new information becomes available.

As always, feel free to contact our office with any questions you may have.

Sincerely yours,

Baker Milligan

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