Yes, you read the title correct. While I am not here to get into political issues such as immigration and building a wall – I will leave that to the experts in those areas – I did want to pass on my thoughts on what effect this Trump Presidency could have on our tax system. Much of Trump’s tax proposals aligns with those recently suggested by other Republican leaders. After researching various documents and articles, including Donald Trump’s website, I have derived the following.
Trump’s proposals have shown attempts to “simplify” the tax code by reducing the number of tax brackets from 8 to 4. The proposal also reduces the top rate from 39.6% to 33%, while also reducing the rate for taxpayers in the lower earning brackets as well. The middle brackets see less of a change.
Trump would keep the current rates of 0%, 15%, and 20%, however, he would shift the brackets. Some taxpayers currently in the 15% bracket would pay 20% on capital gains. Trump has always seemed to be a fan of the capital gains rates, so I doubt he would eliminate them. 20% is still better than 33%.
President Trump has proposed a more dramatic limit on itemized deductions, with a top cap of $100k for single, and $200k for married couples. This could reduce the deductions for some taxpayers, with charitable contributions one of the most significant deductions affected.
This area is one that could have a significant impact. Trump’s proposal is to tax all business income of a taxpayer at 15%. This includes not only income earned through a corporation and partnership, but also any income earned as a sole proprietor or independent contractor that is reported on a Schedule C of an individual tax return. This could have a very significant impact on someone in the 25% and 33% tax brackets. From 33% to 15% is an 18% savings on one’s income.
Section 179 expensing has also been a noteworthy topic for business owners. Trump has proposed 100% expensing of all asset acquisitions. No limitations.
Please note this is all speculation at the moment and shouldn’t be taken as specific tax advice. After all, we don’t know when the changes would take effect, how long they would last, or how the states would handle them if they took affect.