Clayton & McKervey summarizes President Trump’s tax reform plan

Clayton & McKervey, an international certified public accounting and business advisory firm located in metro Detroit, offered a summary of President Trump’s tax reform plan, announced today and titled A Unified Framework for Fixing Our Broken Tax Code. The summary was prepared by Suzanne Tuson, CPA, MST, a shareholder in the firm’s international tax services department.

In reviewing the proposed reforms for individuals and families, Tuson summarized the following key reforms:

• Create a larger “zero” tax bracket by increasing standard deductions to $24,000 married filing jointly and $12,000 for single taxpayers
• Consolidate current seven tax brackets to three brackets of 12%, 25% and 35%, but leave congress the option of creating an additional higher bracket for higher income taxpayers
• Repeal personal exemptions for dependents and increases the Child Tax Credit
• Increase income levels at which the Child Tax Credit begins phase out
• Make the first $1,000 of the Child Tax Credit refundable
• Provide a $500 non-refundable credit for non-child dependents
• Repeal Alternative Minimum Tax (AMT)
• Eliminate most itemized deductions, but retain tax incentives for home mortgage interest and charitable contributions
• Retain tax benefits that encourage work, higher education and retirement security
• Repeal death tax and generation skipping transfer tax

In reviewing proposed reforms for business, Tuson summarized the following key reforms:
• 25% Maximum tax rate applied to business income of small and family owned businesses conducted as sole proprietorships, partnerships and S corporations
• 20% Corporate tax rate
• Eliminate Corporate Alternative Minimum Tax
• Immediate expensing of the cost of new investments in depreciable assets other than structures made after September 27, 2017 for at least five years
• Limit deduction for net interest expense incurred by C corporations
• Eliminate Section 199 Domestic Production Deduction
• Retain Research and Development and Low-Income Housing Credits
• Modernize rules related to special tax regimes for specific industries
• 100% exemption for dividends from foreign subsidiaries (in which the U.S. parent owns at least 10%)
• Treat accumulated foreign earnings as repatriated under the transition to the new system
• Tax at a reduced rate and global basis the foreign profits of US multinational corporations

“Today’s news perhaps raises more questions than provides answers, but we expect further details and implications of the reforms will come to light over the next several days and weeks,” Tuson said.


About Clayton & McKervey
Clayton & McKervey is a full-service CPA firm helping middle-market entrepreneurial companies compete in the global marketplace. The firm is headquartered in metro Detroit and services clients throughout the world. To learn more, visit claytonmckervey.com.

 

Clayton & McKervey identifies and explains key components of President Trump’s tax proposal

The CPAs and tax advisors at Clayton & McKervey, an international certified public accounting and business advisory firm located in metro Detroit, see major changes ahead for businesses and individuals should President Trump’s proposed tax overhaul become law.

The largest and most immediate perceived impact on businesses would be the drop in the highest marginal corporate tax rate from 35 % to 15%, while the top marginal tax rate for individuals is proposed at 35%, down from the current 39.6%.

“For individual business owners, the tax drops could be a significant windfall,” Margaret Amsden, CPA, a shareholder in the tax department at Clayton & McKervey said. “The tax rate on business income reported on tax returns of individuals in pass-through businesses organized as LLCs or Sub-S corporations would drop to 15% rather than being taxed at individual rates. It is not yet clear how the changes to deductions and the closing of “loop-holes” will impact the overall tax burden.”

The President’s plan to repeal the provision of the tax code allowing individuals to deduct state and local income and real estate taxes from their income is expected to have a measurable effect on those who have historically itemized deductions. To offset this in some part, the President’s plan calls for a doubling of the standard deduction.

Individuals in general are expected to see tax changes in the following areas:

  • A drop from seven tax brackets to three: 10%, 25%, 35%
  • Double standard deduction for married filers $24,000
  • Repeal of AMT
  • Repeal of the 3.8% investment tax
  • Repeal of the estate tax
  • Only charitable deductions and home interest itemized deductions will remain.

Back to the proposed business changes, there is an intention to move to a Territorial Tax System, a system that would only tax profits earned in the United States versus the current system that taxes worldwide income. The proposal also provides a one-time lower tax rate on the repatriation of overseas earnings. It should be noted, however, that no specifics have been revealed for either of these concepts yet.

“Many multi-national businesses have accumulated significant earnings overseas. The repatriation proposal would allow companies to bring these overseas earnings back to the United States at a lower tax rate. This proposal is meant to stimulate growth in the U.S. economy,” Sarah Russell, CPA, a shareholder in international tax at Clayton & McKervey, said.

About Clayton & McKervey

Clayton & McKervey is a full-service CPA firm helping middle-market entrepreneurial companies compete in the global marketplace. The firm is headquartered in metro Detroit and services clients throughout the world. To learn more, visit claytonmckervey.com.