With President-Elect Donald Trump and the House and Senate both Republican majority, you may wonder what that means for your taxes. We've put together some information about how you might see your taxes change, possibly as early as the 2017 tax year. U.S. taxpayers are likely to see changes to their tax brackets, tax rates, and deductions.
Tax Bracket and Rate Changes
The most notable of President-Elect Trump's proposals would change tax brackets and tax rates, including lowering the top tax rate by 6.6%. He also proposes simplification of the tax brackets, creating just three brackets as follows:
- 12% rate for married joint filers earning under $75,000
- 25% rate for married joint filers earning $75,000 – $225,000
- 33% rate for married joint filers earning $225,000 and up
Brackets for single filers will be half these amounts
Currently, there are seven tax brackets, with marginal rates ranging from 10% to 39.6%. An overview of the current tax rate schedules can be found here.
The plan presented during President-Elect Trump's campaign, which is still available to view on his website, also calls for changes to the deductions that taxpayers are allowed to take. The proposal includes raising the standard deduction to $30,000 for married filers (from $12,600) and $15,000 for single filers (from $6,300) and elimination of all personal deductions.
For taxpayers using itemized deductions, President-Elect Trump proposes a cap of $200,000 for married joint filers or $100,000 for single filers.
Other Proposed Changes
There are also a handful of other significant changes that President-Elect Trump proposes in his tax plan, including:
- Lower the business tax rate from 35% to 15%
- Elimination of the head of household filing status
- Elimination of Alternative Minimum Tax (AMT) for individuals and businesses
- Repeal of the 3.8% net investment income tax
- Elimination of estate taxes
- Addition of deductions for childcare and eldercare expenses for taxpayers earning less than $500,000 if married or less than $250,000 if single
Will Congress Pass These Proposed Changes?
Tax law cannot be changed unless both the House of Representatives and the Senate pass a bill that the president also signs. According to a recent article on Bloomberg, it is likely that both Democrats and Republicans will need to flex their negotiation skills in order to pass tax reform. It's possible that we may see the Trump plan go into effect with changes. It's also possible tax reform under President-Elect Trump would pass with an expiration date, as was the case with tax cuts under the second President Bush.
Whether it's President-Elect Trump's tax plan or another tax deal, the election's outcome "materially increases the likelihood of passage of a significant tax reform package," according to Donald Moorehead, a tax partner at law firm Squire Patton Boggs.
How Will Changes Affect Me?
We recognize that during the transition period from now until January 20, 2017, many will wonder about how the new administration's various proposed policies may affect their finances and other aspects of life. For taxes at least, the U.S. will have to wait until a tax reform bill is passed and signed into law before we know what truly lies ahead. Once that happens, we'll have another update.
As always, we welcome your questions about the impact of proposed changes on your future tax situation. Please know we remain focused on helping our clients plan for the close of the 2016 tax year, which is unaffected by the election, and prepare to file their 2016 tax returns.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.