After nearly a year of anticipation following President Trump’s triumphant victory in last year’s presidential election, the initial framework for the crafting of tax reform legislation was released today.
The proposal would nearly double the standard deduction to $12,000 for single filers and $24,000 for married taxpayers filing jointly, reduce the number of tax brackets from seven to three (12%, 25% and 35%) and provide a larger child tax credit. At President Trump’s insistence that the wealthiest American’s taxes don’t decrease, which likely includes himself, there may be a higher fourth tax bracket. This would be in addition to the 3.8% Medicare surtax on investment income enacted as part of the ACA law under President Obama which affects individuals with a modified AGI that exceeds $200,000 (or $250,000 if married filing jointly). Most itemized deductions would be eliminated, including state and local taxes, while the deduction for charitable gifts and mortgage interest would be preserved.
The proposed corporate tax rate would be reduced from 35% to 20% while pass-through income (S-corporations and partnerships) would be capped at 25% in lieu of the current 39.6% top individual rate. However, Treasury Secretary Steven Mnuchin suggested some service companies, including accounting firms, won’t benefit from the lower pass-through rate.
For the further details, you can view the tax reform framework in its entirety here.