TRUMP'S TAX PLAN
Tax reform is currently a hot topic in Congress and many
proposals have been set forth for debate. When running for
president, Mr. Trump proposed a tax plan that included many
significant changes to the current code. The highlights of President Trump's proposed tax plan include:
Reducing the tax brackets from seven brackets to three brackets, with the highest bracket being 33%. The qualified dividends and capital gains rates would be adjusted to the new brackets accordingly.
Eliminating the 3.8% Net Investment Income Tax
Eliminating the personal exemption
Increasing the standard deduction to $15,000 for single filers and $30,000 for married filing jointly filers and limiting itemized deductions to $100,000 for single filers and $200,000 for married filing jointly filers
Expanding the tax breaks available for child care and care of the elderly; including creation of a tax-free Dependent Care Savings Account option
Eliminating the estate tax and alternative minimum tax
Decreasing the business tax rate to 15% for all business entities and allowing expensing of certain capital assets in lieu of depreciation
While these propsals have not yet been passed into law, they will likely play a significant role in any tax reform to take place within the next few years.
AFFORDABLE CARE ACT
It is anticipated that for tax year 2017, the Affordable Care Act individual shared responsbility payment (SRP) will remain the greater of $695 ($347.50 if under age 18) or 2.5% of household taxable income for each non-exempt individual who is not covered under an adequate health insurance policy. Taxpayers who had health insurance during 2017 will be receiving 1095 forms from their employer or health insurer regarding their health insurance coverage. These forms are for informational purposes, but will be required for tax preparation if the taxpayer qualified for the Premium Tax Credit.
TAX EXTENDERS UPDATE
With the passage of the Protecting Americans from Tax Hikes Act
of 2015, the following tax provisions are now permanent:
The enhanced Child Tax Credit - The refundable part of this credit (known as the 'additional child tax credit') is calculated at 15% of the amount the taxpayer's earned income exceeds a specified dollar amount (and is limited to $1,000 per qualifying child). The specified amount is permanently set at $3,000, with no indexing for inflation
The American Opportunity Credit - The American Opportunity Credit for education expenses has been made a permanent tax credit, changing the language in IRC §25 to eliminate reference to any expiration date.
The enhanced Earned Income Tax Credit - The Earned Income Tax percentage increase for taxpayers with 3 qualifying children has been made permanent. The phase-out range of the credit has been increased from $3,000 to $5,000 for the married filing joint status with 3 qualifying children in order to reduce the marriage penalty inherent with the credit. The $5,000 is indexed for inflation.
Educator expense deduction - The educator expense deduction for qualifying educator expenses (including expenses paid for professional development) is a permanent deduction. The maximum amount of the deduction is indexed for inflation; the maximum deduction for 2017 is $250.
State and local general sales tax - Taxpayers permanently have the option of claiming state and local sales tax as an itemized deduction.
Increased Section 179 limits
The section 179 deduction limit is $510,000 for total section 179 property acquired and placed in service during the 2017 tax year. The threshold for such property is $2,030,000. These limits are indexed for inflation.
Other provisions made permanent by the Protecting Americans from Tax Hikes Act of 2015:
Research credit, including how it applies to AMT and payroll tax credits
Permanent parity for the amount of qualifying transportation fringe benefits that are eligible for exclusion from income
Permanent increased percentage limits and carryforward provisions for qualified conservation contributions
IRA qualified charitable distributions can be excluded from income
Enhanced deduction for contributions of food inventory
Extension of modification of tax treatment of certain payments to controlling exempt organizations
Reduction of basis in the stock of an S corporation on account of charitable contribution of property
The PATH Act also includes provisions that were extended for a defined period of time.
The following provisions were extended through tax year 2016, it is not yet known if they will be available for the 2017 tax season:
Debt forgiveness for qualifying mortgage indebtedness
Tuition and fees deduction
Deductible mortgage insurance premiums
Work Opportunity Tax Credit
New Markets Tax Credit
Bonus Depreciation - the 50% bonus depreciation applies for tax year 2017; this percentage drops to 40% for 2018 and 30% for 2019. Assets qualifying for bonus depreciation have been expanded to include certain vines, trees, and fruit or nut-bearing plants.