One of the pressing issues of President-elect Donald Trump’s campaign was his proposed tax reform. It is clear that not everything will be passed into law, and in fact changes were made over the course of the presidential race before arriving at the current proposal. Of course, it is too early to know exactly what will change and by how much, but it is clear that some major changes will be made. With the backing of a Republican majority in both the House and Senate, it should not take long for these changes to happen. Furthermore, many of the changes are not significantly different than previously proposed tax reforms by some Republican Congressmen, which should help ease their passage into law.
I would like to summarize some of the changes that appear in Mr. Trump’s Tax Plan.
The most significant change will be for corporations. The proposed corporate tax rate will decrease to 15% (from 35%). There will be other changes relating to incentives and deductions, and a flat tax rate of 10% on all foreign earnings when repatriated to the United States. This be a significant consideration for Israelis investing in the United States in terms of how to structure their investments.
More significant for American citizens living in Israel are the proposed changes in personal income taxes. The Plan proposes reducing the number of tax brackets to three and decreasing tax rates, as follows:
|Taxable Income for Single Filers||Taxable Income for Married Filing Jointly||Tax Rate Percent|
|Less than $37,500||Less than $75,000||12%|
|$37,500 – $112,500||$75,000 – $225,000||25%|
|More than $112,500||More than $225,000||33%|
The Plan will set the capital gains tax rate at a maximum of 20%. The additional capital gain “Net Investment Tax” of 3.8% will be abolished.
Alternative Minimum Tax (AMT) will be abolished, as well, for both individuals and corporations.
Standard deductions for single and married individuals will increase by about 240%.
The Plan proposes, however, to eliminate personal exemptions and the Head of Household filing status.
Another benefit of the Plan is to increase the child care deduction, and allow it for “stay at home” parents, as well. There is no mention in the Plan of the $1,000 Child Tax Credit for children under the age of 17, and there is no reason to assume this will change.
Another very important change will be the elimination of both estate and gift taxes as we know them today. The only estate tax that will remain is a 10% tax on capital gains in excess of $10 million.
It is clear that even if only some of the changes are passed into law, they will have a very significant effect for virtually all taxpayers subject to US tax. It is critical for US taxpayers to keep abreast of these changes and seek advice as to how they may affect your tax situation.