Many of you have heard that President Donald Trump has proposed changes to the tax laws, some of which includes lowering the rates paid by businesses. Here are a few of the highlight’s of the proposed plan:
Individuals have a higher standard deduction.
The standard deduction is a default amount of money that can be exempted from income taxes. Currently the standard deduction amount for single filers is $6,300, while the number for married couples is $12,700. Under Trump’s plan, the standard deduction would double. A single filer would be able to deduct $12,600 from his taxes, while the deduction for joint filers would be $24,000.
There are fewer tax brackets and a lower maximum rate.
One of the most noticeable changes under the proposed system is a reduction in the number of tax brackets, and a lower maximum tax rate at the top level. Instead of seven different tax brackets as there are now, the Trump proposal would have only three.
The corporate tax rate would fall dramatically.
The next part of Trump’s proposal is good news for businesses. Corporations would see their tax rate fall from 35 percent to a much friendlier 15 percent. Throughout his campaign, Trump repeatedly pointed out that the United States has one of the highest corporate tax rates in the world.
Many small businesses are structured as limited liability companies and partnerships. These businesses would also receive dramatic tax breaks. Currently, such “pass through” income is reported on the individual tax returns of each owner, where it can be taxed at a rate up to 39.6 percent.
The new plan would permit small business taxes to stay at the lower corporate rate of 15 percent and essentially allow business owners to keep more of their hard-earned money.
The “death tax” and several others would disappear completely.
Several parts of the complex tax code would be eliminated under the proposed plan. One of those would be the estate tax, also known as the “death tax.” This tax was originally intended to affect wealthy Americans who die with an estate valued at more than $5.49 million.
Over time, those wealthy families have developed legal ways to avoid the estate tax. As a result, many of the estates that pay the tax consist of family farms and other so-called “unsophisticated” investments. Trump’s plan would get rid of the “death tax” entirely and remove this complexity from the tax system.
Another complex part of the tax code that Trump would eliminate is called the Alternative Minimum Tax. Many experts believe that this tax has become outdated and redundant because it was not tied to inflation when first implemented.