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Trump tax plan

What Does Trump Tax Plan Mean for Entrepreneurs?

Michael S Melfi

Intellectual Property Attorney at Melfi Associates
Michael S. Melfi, J.D., MBA, is an attorney with Bodman PLC who represents emerging companies and established businesses in a wide array of technology and corporate matters. He has extensive experience mentoring, counseling and securing funding for entrepreneurs, inventors, startups and small businesses and their disruptive technologies. His passion is guiding and supporting emerging companies and entrepreneurs and has authored four books aimed to help entrepreneurs gain a better understanding of often seemingly complex areas. Michael is a partner at Bodman PLC, one of the Midwest’s leading business law firms, that provides counsel to some of the region’s most successful companies and individuals on a broad range of issues.

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


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.

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