The 45th President of the United States, Donald Trump, takes office today, and the U.S. will be undergoing a proposed new tax plan that comes with many changes to the landscape of tax codes. So what exactly does this Trump tax plan mean for entrepreneurs?
According to the accounting firm UHY, President Trump’s tax plan looks to reduce taxes across the board, including making the business tax rate more competitive and creating new opportunities to grow our economy.
The chart below outlines how Trump’s proposed plan compares to our current system.
BUSINESS TAX
| 2016 | Donald Trump | |
| Corporate Tax Rates | Top rate of 35% | Top rate of 15% |
| Alternative Minimum Tax | Applies to corporations | Eliminated |
| Pass-through Entities | Income taxed as ordinary income on individual tax return | Option to elect a flat tax of 15% on pass-through income |
| Capital Investments | Capitalized and depreciated | Option to expense or capitalize;
If expensing, interest costs are non-deductible |
| Unrepatriated Earnings | Not taxed until brought back into US | One time tax of 10% of total unrepatriated earnings |
| Childcare Deductions | Employer-provided day care credit capped at $150,000 | Employer provided day care credit capped at $500,000; Additional deduction for employer contributions to employee childcare costs |
| Corporate Tax Deductions/Credits | Includes Research and Development credit, Domestic Production Activities Deduction, etc | Eliminate except for Research and Development |
| Inversion Transactions | Foreign firms owned 80% or more by US shareholders are considered US firms for tax purposes | No specific proposal |
INDIVIDUAL TAX
| 2016 | Donald Trump | |
| Ordinary Income Rates | 7 brackets with top rate of 39.6% | Single
12% $0-37,500 25% $37,500-112,500 33% over $112,500 Married 12% $0-75,000 25% $75,000-225,000 33% over $225,000 **Head of Household status is eliminated |
| Standard Deduction | $6,300 (single)
$12,600 married) $9,300 (Head of Household) |
$15,000 (single)
$30,000 (married) Head of Household eliminated |
| Personal Exemption | $4,050 | Eliminated and included in the standard deduction |
| Itemized Deduction | Phase out begins:
$259,400 (single) $311,300 (married) |
Total itemized deductions capped at:
$100,000 (single) $200,000 (married) |
| Like-kind Exchanges | Accrued under federal law | No specific proposal |
| Net Investment Income Tax | 3.8% on AGI above:
$200,000 (single) $250,000 (married) |
Eliminated |
| Alternative Minimum Tax | AGI above:
$200,000 (single) $250,000 (married) Trusts with income over $12,400 |
Eliminated |
| Capital Gains/Dividends Rates | Maximum rate of 20% with one year holding period | No change |
| Child/Dependent Care Expenses | Child/Dependent Care Credit limited for AGI over $43,000 | Above the line deductions for children under age 13 and for care for elderly dependent;
Dependent Care Savings Accounts (DCSA)- deductible $2,000 contribution every year |
| Carried Interest | Taxed at rates on capital gains | Taxed as ordinary income |
| Estate Tax | Exclusion of $5.45 million adjusted for inflation, top rate of 40% | Eliminated,
Except for estates over $10 million which will be subject to capital gains tax |
| Gift Tax | Lifetime exclusion of $5.45 million adjusted for inflation;
Annual exclusion of $14,000 per donee |
Eliminated |
| Retirement Savings Contributions | No limit on lifetime contributions | No specific proposal |
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Regardless of political views, this tax plan is focused on keeping more money in the hands of taxpayers. The real question for small business owners now becomes, “How does this newfound money get spent by an entrepreneur?” Independently run businesses make up a large majority of businesses in America whose profit and loss statement could potentially benefit by lower taxes.
We will have to watch and see how Congress responds to this proposal and if passed, how entrepreneurs handle these financial changes in their businesses.
