At the time this article was published, Donald Trump’s Unified Framework For Fixing Our Broken Tax Code (UFFOBT) has been known to the public for only a few weeks. The main principals are as follows:
The UFFOBT reduces the number of tax rates to three (from the seven in place today). The proposed rates are 12%, 25% and 35%. It is unknown what income will fall into each rate structure.
Increased Standard Deduction
UFFOBT increases the standard deduction for married couples to $24,000 and for single filers to $12,000. This increase will reduce the number of people who itemize their deductions on Schedule A.
Increased Child Tax Credit
It is unclear what this increased credit will be. UFFOBT requires the lawmakers to determine what amount this credit will provide. It will likely be higher than the $1,000-per-child credit provided today.
Limit or Eliminate Deductions, AMT, and the Estate Tax
UFFOBT proposes to eliminate the state and local tax deduction, personal exemption allowances, abolish the Alternative Minimum Tax, and abolish the Estate Tax.
Business Tax Changes
Corporate rates would be reduced from today’s 35% rate to 20%. Pass-through entity profits would be taxed at a rate of 20%, reduced from highest individual rate today of 39.6%.
United States business, today, pay a 35% tax on overseas profits when they repatriate them to the United States. UFFOBT would reduce this rate to equal the tax rate where the funds are earned abroad with a minimum foreign tax (to avoid shifting income to low tax jurisdictions). UFFOBT would also propose a one-time “tax holiday” whereby companies may repatriate their foreign profits at a very low tax rate.
2017 Tax Planning
It is difficult to plan around the UFFOBT since it is unclear what, if anything, will become final law. We anticipate this proposal to be very fluid and it is highly unlikely that any tax reform will be identical to what is proposed today under UFFOBT. With that said, we all know there will not be any change for the worse in 2018. As a result, our advice is to sit-tight and hope for the best.
The one item to be delicate with is estate planning. We certainly want to plan to take advantage of yearly allowances and exemptions in planning, but we would be reluctant today to establish any long term vehicles, unless absolutely necessary, since there is the chance that the estate tax will be abolished.