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Individual Taxation

By December 19, 2016No Comments



Income Tax

During the campaign, Trump proposed to compress into only three tax brackets the current seven tax brackets, which currently tops out at 39.6 percent. Trump’s proposal would reduce rates on ordinary income to 12, 25, and 33 percent. 


Trump’s tax plan for three-bracket tax rate structure of 12, 25, and 33 mirrors the House GOP Tax Reform Blueprint released in June 2016. Trump has not specified the income levels within which each bracket percent-age would fall. 

Under Trump’s plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation. Trump also proposed during the campaign to implement a cap on the amount of itemized deductions that could be claimed at $100,000 for single filers and $200,000 for married couples filing jointly. Additionally, according to campaign materials, all personal exemptions would be eliminated, as would the head of household filing status.



One result of increasing the standard deduction would likely be to reduce the number of taxpayers who itemize deductions.


Capital Gains/Dividends

The current rate structure for capital gains would apparently remain unchanged under Trump’s plan. Trump presumably would also retain the same rates for qualified dividend income. However, Trump has proposed to repeal the 3.8 percent net investment income (NII) tax imposed on passive income, including capital gains.


The current capital gains rate structure, imposed based upon in-come tax brackets, would presumably be re-aligned to fit within Trump’s proposed percent income tax bracket levels 

Estate and Gift Tax

During the campaign, Trump proposed to repeal the federal estate and gift tax. The unified federal estate and gift tax kicks in at $5.490 million for 2017 (essentially double at $10.980 million for married individuals).


During the campaign, Trump also added to estate and gift tax repeal a proposal that would disallow “stepped up basis” to shelter otherwise taxable gains of more than $10 million under the income tax. Currently, any asset that passes through an estate receives a tax basis equal to date of death value, a significant tax advantage when the asset is eventually sold by heirs. Trumps plan would appear to provide exemptions for small businesses and family farms.


Alternative Minimum Tax (AMT)

During the campaign, Trump proposed to eliminate the alternative minimum tax (AMT). 



National Taxpayer Advocate Nina Olson has recommended Congress permanently repeal the AMT. Although it serves as a revenue source, significant tax reform would likely present other options to offset the cost of elimination. 

Net Investment Income (NII) Tax

During the campaign, Trump proposed to re-peal the Affordable Care Act (ACA). Repeal of the ACA would include repeal of the 3.8 percent net investment income (NII) tax.

Childcare Tax Benefits

Trump proposed during the campaign to create a new deduction for child and de-pendent care expenses, as well as increasing the earned income tax credit (EITC) for working parents who would otherwise not qualify for the deduction. Trump’s plan, as explained during his campaign, would provide:

·         “Spending rebates” to lower-income families for childcare expenses through the EITC. “The rebate would be equal to a certain percentage of remaining eligible childcare expenses, subject to a cap of half of the payroll taxes paid by the taxpayer,” according to campaign materials.

·         “Above-the-line” deductions for child and elder care expenses, for qualified taxpayers with income up to certain thresholds.

Trump also proposed during the campaign to create Dependent CARE Savings Accounts (DCSAs), tax-favored savings accounts for children, including unborn children, and dependent care expenses, which would be matched by a government contribution. The savings accounts would have an annual contribution limit. Trump’s plan would also expand the credit for employer-provided child care.

Carried Interest

Trump proposed during the campaign to tax carried interest as ordinary income. 


Private equity partners have been taxed at 20 percent, the current top rate for capital gains. 

This article originally appeared in BDO USA, LLP’s “Post-Election Tax Policy Update” (November 2016). Copyright © 2016 BDO USA, LLP. All rights reserved.