In our earlier article, we highlighted the tax plan for individual taxpayers as proposed by U.S. President-elect Donald Trump and the House of Republicans. In this article, our main focus is to detail out proposed business tax changes.
While tax changes for individuals focus on improving the tax system for low-mid income group taxpayers, the proposed business tax changes focus on improving the economy.
The following is a brief overview of President-elect Donald J. Trump’s proposed tax changes for corporate and business taxpayers in the United States.
Proposed Tax Reforms for Business Taxpayers
- Both Trump and the House of Republicans propose to lower the business tax rate from 35%. Trump is proposing a rate of 15% while the house has suggested 20%. These rates would be made available for both small and large businesses. This measure would likely make the United States more attractive for business owners to incorporate in the U.S. rather than neighboring countries.
- The House would also like to see a new business rate for sole proprietorship businesses or flow-through entities instead of taxing them at individual rates.
- The corporate alternative minimum tax (AMT) will be eliminated
- To bring funds back into the United States, Trump’s plan would provide for a one-time tax of 10% for a deemed repatriation of corporate profits held offshore. The House, however, proposes a 100% exemption for dividends from foreign subsidiaries.
- Other than the Research and Development credit, most corporate tax expenditures would be eliminated under Trump’s plan. The House would retain the research credit (but will evaluate options to make it more effective). They would also eliminate certain (but unspecified) special interest deductions and credits.
- The House has proposed immediate expensing of the cost of business investments while Trump’s plan benefits only manufacturing firms in the U.S. by allowing them to make an election to expense capital investment but lose the ability to deduct corporate interest expenses.
- Trump’s tax reform puts great emphasis on childcare. He has proposed:
– That the annual cap for the business tax credit for on-site childcare is proposed to be increased from
$150,000 per year to $500,000 per year, with the recapture period being reduced from 10 to 5 years.
– Businesses paying for the childcare expenses of an employee will be able to deduct these expense payments
from their income.
– Employees receiving direct employer subsidies will not be able to claim the paid costs on their individual income tax and the costs of direct subsidies to employees would not be used as a cost eligible for the business credit.
- Further proposals made by the House of Republicans include:
– Allowing interest expenses to be deducted only against interest income, with any unclaimed expense carried forward and allowed as a deduction against net interest income in future years;
– Allowing net operating losses (NOLs) to be carried forward indefinitely and increased by an interest factor, and eliminating NOL carrybacks;
– Changing to a territorial tax system;
– Looking at a more “consumption-based tax approach”;
– Simplifying international tax rules, including elimination of most of the Subpart-F rules.
The tax plan that President-elect Donald Trump proposes for corporate and business taxpayers, contrasts significantly from the U.S. House of Republicans regarding taxation of capital investment and debt, and the proposed tax rate for small businesses.
With these measures, President-elect Donald Trump also intends to get multinational companies to pay their annual U.S. tax bill as well as receive repatriation taxes on the approximately $2.6 trillion of income that many U.S. corporations like Apple, Microsoft and others have kept in offshore locations.
Along with these corporate tax changes, Mr. Trump also intends to direct $1 trillion of funds over a 10-year period toward infrastructural improvement by building roads, bridges and airports. This would also fulfill the goal of providing jobs to many individuals. The $1 trillion is expected to be generated primarily from tax credits for private companies, equity investments and privately raised debt.
These are the current set of tax measures that President-elect Donald Trump and the House of Republicans have proposed. It is unclear which of these measures will be passed by the government, and become law. However, small business owners/taxpayers should consult their tax practitioners to prevent any tax changes from impacting their business in a negative way.
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.
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