The release yesterday of a “Framework for Tax Reform” formally starts the political process of enacting long overdue tax reform for the US. As the title states what has been presented is merely a “framework,” and will take time and significant discussion and negotiation to become law. The release highlights the impact to individuals and businesses with the overall goal of eliminating tax loopholes and helping businesses create more jobs and promote competitiveness. The following are some of the salient points.
- Lower rates for individuals and families by shrinking the current seven tax brackets to three;12% 25% and 35% with the potential of a fourth higher tax bracket for the highest income taxpayers
- Double the Standard deduction to $12,000/$24,000 and enhance the child tax care credit as well as eliminate all itemized deductions other than charitable and home mortgage interest.
- Repeal the estate tax and the alternative minimum tax (AMT).
- Create a new lower tax rate for small businesses (pass through entities) at 25% which is lower that what is typically paid today.
- Lower the corporate tax rate to 20% from the existing 35% to make such companies more competitive from a worldwide perspective.
- Allow for the immediate expensing of business capital investments but severely limit the deduction of business interest expense.
- Provisions to encourage bringing jobs and profits back to the US and leveling the worldwide competitive landscape.
While it is too early to execute most planning strategies as what has been proposed are just concepts and the details need to be worked out, there are areas that one needs to start considering including:
- Charitable giving- there may be merit, depending on one’s personal situation, to consider accelerating charitable contributions in 2017. As of now we now what law will apply for this year and what the tax rates will are. Given the potential of a tax decrease after 2017 this may be a good year to consider increased donations. In addition there has been talk in Washington of eliminating the donation of the fair market value of appreciated securities after this year which the charities are lobbying against.
- It is also worth noting that the current proposals are not eliminating the gift tax. This is thought to prevent income shifting and also provide a level playing field if an alternative to the estate tax is eventually enacted.
- Consider restructuring testamentary charitable gifting to lifetime giving
- Consider maximizing in 2017 deductions that might be eliminated in the future
- Consider the timing of business sales depending on tax rate timing issues.