Along with a new government formation comes new laws and proposed changes whether it is related to immigration, domestic & foreign policies, or taxes. With the U.S. elections coming to an end, and Mr. Donald J. Trump being declared the new U.S. President many tax changes are on the horizon.
The elected government has indicated that it intends to improve the U.S. Internal Revenue Service (IRS) and make it more streamlined, along with bringing in changes for individual and business taxpayers.
The primary agenda is to reduce tax rates for lower and middle-class working people, reduce childcare costs, and ensure proper/appropriate taxation of the rich. The following is a list of tax changes for individual taxpayers that Mr. Donald J. Trump has proposed to implement once he takes charge of the presidency.
IRS Reforms under Trump Presidency
To streamline the IRS services, the House Republicans have proposed that the IRS be divided into, three major units:
- Families and individual taxpayers
- Businesses
- Simple Tax Issues
The third unit will be comprised of a ‘small claims court’ that will work as an independent organization to settle small & simple tax disputes and resolve tax situations quickly.
Furthermore, the IRS will be headed by an administration appointed for a 3-year term period by the U.S. President with the consent and advice of the Senate.
Tax Reforms for Individual Taxpayers
Both Trump and the House of Republicans have agreed that the new plan would provide for only three tax rates.
The Proposed tax changes to tax rates for Married-Joint (MFJ) and Single filers would be:
Proposed Tax Rates for MFJ v/s Current Tax Rates for MFJ
| Proposed Taxable Income | Proposed Tax Rate | Current Taxable Income | Current Tax Rate |
|---|---|---|---|
| $0 – $75,000 | 12% | $0—$9,275 | 10% |
| $75,001 – $225,000 | 25% | $9,276—$37,650 | 15% |
| $225,001 or more | 33% | $37,651—$91,150 | 25% |
| – | – | $91,151—$190,150 | 28% |
| – | – | $190,151—$ 413,350 | 33% |
| – | – | $413,351—$415,050 | 35% |
| – | – | $415,051 or more | 39.6% |
Proposed Tax Rates for Single v/s Current Tax Rates for Single
| Proposed Taxable Income | Proposed Tax Rate | Current Taxable Income | Current Tax Rate |
|---|---|---|---|
| $0 – $37,500 | 12% | $0—$9,275 | 10% |
| $37,501 – $112,500 | 25% | $9,276—$37,650 | 15% |
| $112,501 or more | 33% | $37,651—$91,150 | 25% |
| – | – | $91,151—$190,150 | 28% |
| – | – | $190,151—$ 413,350 | 33% |
| – | – | $413,351—$415,050 | 35% |
| – | – | $415,051 or more | 39.6% |
Along with these proposed tax rates, President-elect Donald Trump also proposes to do-away with the ‘Head of Household’ tax filing status. These taxpayers would need to file as ‘Single’.
In addition to changing the tax rates, the new government also intends to:
- Repeal ‘Net Investment Income Tax’ (NIIT) of 3.8%
- Eliminate the ‘Alternative Minimum Tax’ (AMT).
- Provide for reduced and progressive tax rates on capital gains and dividends. While Trump would like to see carried interest taxed as ordinary income, the House of Republicans have proposed reduced rates on interest income.
Proposed Reforms for Tax Credits and Deductions
When it comes to tax credits and deductions, President-elect Donald Trump proposes the following:
- To increase the standard deduction for joint filers to $30,000, and $15,000 for single filers.
- Although Trump would like to see Itemized deductions capped at $200,000 for taxpayers filing as ‘Married filing Joint’, and $100,000 for ‘Single’ filers, the House would like to see most of the itemized deduction items being eliminated except for mortgage interest deduction and charitable contribution deduction.
- Personal exemption deduction would be eliminated.
- Trump puts great emphasis on new child and elder care tax breaks, and the House Republicans do not. Trump proposes three child care and elder care benefits:
1. An above-the-line child care deduction for children under age 13 which will be capped at state average for age of child, and for eldercare claimed as a dependent. The deduction will not be available to taxpayers with total income above $500,000 for ‘Married filing Joint’ and $250,000 for ‘Single’.
2. A special rebate of 7.65% of remaining eligible childcare expenses (subject to a cap) for childcare expenses will be provided to low-income group taxpayers ($62,400 for married filing joint and $31,200 for single tax filers) through the Earned Income Tax Credit (EITC).
3. Taxpayers will be allowed to establish Dependent Care Savings Accounts (DCSAs) for the benefit of specific individuals, including unborn children, and contribute up to $2,000 annually toward this account. The government will make a similar contribution towards the DCSA of half of the parental contribution capped at $1,000 per year.
- Instead of Trump’s child care proposal, the House of republicans proposed that existing family tax benefits will be clubbed into a larger standard deduction amount, and a larger child and dependent tax credit amount.
In addition to the above mentioned tax changes, the House intends to maintain the current tax incentives for retirement savings, while looking for ways to improve the Earned Income Tax Credit (EITC), and simplify higher education related tax benefits.
Estate Tax Reforms
In general, death tax would be repealed by the President-elect, however, capital gains on property held until death and valued over $10 million would still be subject to tax. Small businesses and family farms will be exempt from this taxation.
Having said that, in order to prevent misuse of this law, the decedent or his/her relatives will not be allowed to make contributions of appreciated assets toward a private charity established by them. In addition, generation-skipping transfer (GST) taxes will be repealed. This proposal is likely to benefit wealthy taxpayers but not likely to make much impact since it is estimated that only 0.2% of estates every year are subject to the federal estate tax.
No mention was made as to whether there was a plan to eliminate gift taxes.
These are some of the proposed tax changes for individual taxpayers by President-elect Donald J. Trump and the House of Republicans. In addition to tax changes, many other changes to foreign policies and agreements have been proposed. Another expected big change is the elimination of the Affordable Care Act or Obamacare and continuation of the Health Savings Account (HSA) as it was done in earlier years.
To find out about the changes proposed by President-elect Donald J. Trump for U.S. business taxpayers, check out our article on: Business Tax Changes Proposed by Donald Trump.
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
