On Wednesday, Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn unveiled what they termed “the biggest tax cut “ in US history.
WHAT YOU NEED TO KNOW
- The top corporate tax rate would fall from 35% to 15%.
- Business owners of pass-through entities would have income taxed at the entity level at the 15% rate. Presumably this would include partnerships, but the release did not specify if partnerships were included in the change.
- Companies would be allowed to repatriate monies from abroad to the US with a one-time tax, which was not specified in the release.
- Eliminated—Alternative Minimum Tax (AMT), the 3.8% tax on net investment income, and the federal estate tax. The federal gift tax, however, was not mentioned. Also eliminated would be itemized tax deductions other than for charitable donations and mortgage interest. The elimination of deductions for state and local taxes would be particularly hard felt in states such as New York and California.
- Individual tax rate brackets would be reduced from 7 to 3 — 10%, 25% and 35%. There was no mention as to what income levels would be associated with each of those rates.
- The standard tax deduction would be elevated to $12,700 for individual filers and $25,400 for joint filers—double the current deduction.
The President’s proposal is only one step in what promises to be a long and arduous process of tax overhaul. There is certain to be opposition and compromise before any changes become law, if in fact they do become law. You should proceed with caution before taking actions based on the announcement.
Please feel free to contact your Friedman LLP tax professional for further discussion relating to your tax planning and compliance needs.