President Trump and his team of tax experts, which includes former Goldman Sachs alums Gary Cohn and Steven Mnuchin, delivered a broad outline of what would be the biggest tax overhaul since 1986. And there is something in it for everyone.
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1. Keep More of Your Income, Delivers on Deductions
Americans can expect a sizable increase to the standard deduction allowed when filing taxes, permitting taxpayers to keep more of their income – to the tune of a couple thousand dollars.
Under the proposal, tax breaks for individuals and married couples filing separately will increase from $6,300 to $12,600. The standard deduction for a married couple filing jointly will jump from $12,700 to approximately $24,000, “so that a married couple will not have to pay taxes on the first $24,000 it earns,” said Trump’s National Economic Director Gary Cohn Cohn.
2. Protects Key Benefits in Place
While Trump’s plan calls for the elimination of the majority of personal tax breaks, Americans currently enjoying a trio of deduction benefits can rest easy. Mortgage interest, charitable giving and the practice of socking away money for retirement— tax free— won’t be touched.
3. Death to the Death Tax
Whether you call it the ‘Death Tax’ or the ‘Estate Tax,’ it can add up to a serious chunk of change for families and family-owned businesses. Trump’s team is proposing to repeal it, along with the Alternative Minimum Tax (AMT), a supplemental income tax that follows different guidelines than the standard tax code. Often wealthy individuals are subject to the AMT. Back in 2005, Trump paid $38 million in taxes according to released returns, though experts say he would have paid less if not for the AMT.
4. Businesses Catch a ‘Yuge’ Break
During the 2016 presidential campaign, a then-candidate Trump frequently bemoaned the U.S. corporate tax rate, which is the highest in the developed world at 35 percent.
The administration’s new plan proposes cutting the corporate tax rate by twenty percentage points, from 35 percent to 15 percent, a move that would also apply to owner-operated companies, which includes many small businesses.
Additionally the Trump camp wants to transform the corporate tax process from a worldwide system into a territorial one.
A territorial taxation process taxes only the income earned by a company within the specific country, eliminating double taxes. The intention of this switch is to reduce the incentive for companies to move their headquarters overseas, thus driving investment back into the U.S.
U.S. corporations have at least $2 trillion sitting overseas. Pro-growth economists say these moves will boost hiring across small, medium and large businesses.
5. Keep It Simple: Filing & Forms
90% of taxpayers need help when filing their taxes, according to National Economic Director Gary Cohn, who noted 7 billion hours are devoted to navigating the complicated system each year. No surprise here, the 1040 form has 79 lines and 211 pages of instructions. Instead of a single form, the IRS now has 199 tax forms just on the individual side of our tax code, said Cohn, who promised to keep it simple by “taking the current seven tax brackets we have today and reducing them to only three brackets -- a 10 percent bracket, a 25 percent bracket, and a 35 percent bracket.”