The framework for President Trump’s new tax plan is being unveiled today. It is the opening act of what is likely to be a lengthy process to attempt to overhaul the existing tax code. So, what will this new plan mean to you and your business?
Here are a few of the proposed alterations:
1. A 25% rate for pass-through businesses. This would apply to people who own businesses. Instead of getting taxed at an individual rate for business profits, owners would pay at the pass-through rate. The plan says it will consider rules to prevent "personal income" from being taxed at this rate. There may be limitations on what types of business get this rate - applying only to goods producers and not service-oriented businesses to prevent people from creating LLC’s to store their assets and obtain a lower rate.
2. Eliminates most itemized deductions. While not specifically named, the only deduction preserved in the plan explicitly are for charitable contributions and home mortgage interest.
3. A one-time repatriation tax. All overseas assets from US-owned companies would be considered repatriated and taxed at a one-time lower rate. This is designed to bring corporate profits back from overseas.
4. A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would be doubled to $12,000 for individuals — up from $6,350 — and $24,000 for married couples — up from $12,700.
5. Highest tax bracket eliminated. The plan is likely to include a tax cut for the country's highest earners, single and married filing joint taxpayers with taxable income above $418,400 and $470,700, respectively, could see the elimination of the 39.6% tax bracket. However, the administration has said that the House and Senate committees creating the legislation could elect to add a tax bracket above the 35 percent rate if needed.
This new tax plan could take some time to execute as there are still many unknowns. While today is indeed an important moment in the tax reform process, the GOP's work is really just beginning. We at BluePoint Financial will be sure to keep you informed on how this plan may affect you and your business.
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