The election of Donald Trump as President of the United States could result in major tax law changes in 2017. Proposed changes spelled out in Trump’s tax reform plan released earlier this year that would affect businesses include:

  • Reducing the top corporate income tax rate from 35% to 15%,
  • Abolishing the corporate alternative minimum tax,
  • Allowing owners of flow-through entities to pay tax on business income at the proposed 15% corporate rate rather than their own individual income tax rate, although there seems to be ambiguity on the specifics of how this provision would work,
  • Eliminating the Section 199 deduction, also commonly referred to as the manufacturers’ deduction or the domestic production activities deduction, as well as most other business breaks — but, notably, not the research credit,
  • Allowing U.S. companies engaged in manufacturing to choose the full expensing of capital investment or the deductibility of interest paid, and
  • Enacting a deemed repatriation of currently deferred foreign profits at a 10% tax rate.

President-elect Trump’s tax plan is somewhat different from the House Republicans’ plan. With Republicans retaining control of both chambers of Congress, some sort of overhaul of the U.S. tax code is likely. That said, Republicans didn’t reach the 60 Senate members necessary to become filibuster-proof, which means they may need to compromise on some issues in order to get their legislation through the Senate.

So there’s still uncertainty as to which specific tax changes will ultimately make it into legislation and be signed into law.

It may make sense to accelerate deductible expenses into 2016 that might not be deductible in 2017 and to defer income to 2017, when it might be subject to a lower tax rate. But there is some risk to these strategies, given the uncertainty as to exactly what tax law changes will be enacted. Plus no single strategy is right for every business.

Please contact us to develop the best year-end strategy for your business.

Side by Side, Tax Positions Blueprint

 TrumpHouse GOP
Top corporate tax rate (now 35%)15%, corporate AMT eliminated20%, corporate AMT eliminated
Top pass-through rate (now 39.6%)15% rate within the personal income tax system for pass-through entities that want to retain profits within the business25%
Taxation of future foreign earningsIn September 2015, proposed immediate worldwide taxation, repeal of deferral; unclear if he still supportsTerritorial, 100% exemption for dividends paid from foreign subsidiaries - Border tax adjustment mechanism
Mandatory tax, untaxed accumulated foreign earnings10%8.75% for cash/cash equivalents, 3.5% otherwise, payable over 8 years
Cost recoveryExpensing for manufacturers100% expensing of tangible, intangible assets
Other business provisionsCalls for them to generally be eliminated, except for research creditCalls for them to generally be eliminated, except for research credit and LIFO
Individual rates (now 10%, 15%, 25%, 28%, 33%, 35%, 39.6%)12%, 25%, 33%12%, 25%, 33%
Capital gains-Existing capital gains rate structure (maximum rate of 20%) -3.8% Net Investment Income Tax (NIIT) repealed50% deduction for capital gains, dividends, and interest, leading to basic rates of 6%, 12.5%, and 16.5%
DividendsExisting rates but NIIT repealed
Carried interestOrdinary income(Not addressed)
Estate tax (now 40% rate, $5.45 million exemption)Repealed, but capital gains held until death will be subject to tax, with the first $10 million tax-freeRepealed
State tax deductionCap itemized deductions at $100,000 for single filers and $200,000 for couplesEliminated
Charitable contribution deductionRetained, but could be modified
Mortgage Interest deductionRetained, but could be modified
Dependent care expenses- Deduction for care expenses, up to 4 children, elderly dependents, capped at the average cost of care for state of residence - Available to those earning $250,000 per year or less for individuals, $500,000 couples- Child credit and personal exemptions for dependents consolidated into an increased child credit of $1,500 - First $1,000 will be refundable as under current law - Non-refundable credit of $500 also will be allowed for non-child dependents
Personal Exemption Phase-out (PEP), and Pease limitation on itemized deductions (now apply for families with income over $311,300, individuals over $259,400)Unspecified "steepening the curve" of PEP and Pease(Not addressed)
Personal AMTEliminatedEliminated
Life insurance build-upIncluded in income for high earners(Not addressed)