Trump’s Tax Plan: What It Means for Your Practice

Wow, what an election. Setting personal feelings and hot-button issues aside, one of the biggest changes under a Trump Administration with a Republican Congress will be to the tax system. While any changes made will not retroactively affect your 2016 filing, tax planning for the 2017 tax year will be interesting.

A General Overview

If you haven’t reviewed any literature concerning these changes, now is the time to start. A few key components of Trump’s plan that practice owners should be aware of are:

  • Simplification of the existing tax structure with a reduction of the number of tax brackets. Currently there are 7 income brackets for regular income, which will decrease to 3 based on the proposed plan; a complete overhaul of the current system. Tax rates for dividends and capital gains will likely remain as it stands, with the rates of 0%, 15%, and 20% in each of the 3 new tax brackets. The proposed tax rates for each bracket based on income are as follows:
Income (Single) Income (Married) Tax Rate Capital Gains/Dividend Rate
 $0 – $37,500  $0 – $75,000   12%  0%
 $37,500 – $112,500 $75,000 – $225,000   25% 15%
 $112,500+  $225,000+   33%  20%
  • An increase in the standard deduction.
  • The Obamacare tax on doctors’ personal investment income – which taxes capital gains, interest, investment income, etc. at a rate of 3.8% – could be repealed, effectively lowering your tax liability.
  • The Alternative Minimum Tax (AMT) could be repealed, both for personal and business taxes.
  • Itemized deductions will likely be capped at a maximum of $100,000 for single filers and $200,000 for married filers.

The Effect on Your Practice

The business tax rate could be lowered from 35% to 15%, which will apply to profits for both large and small businesses. This includes not only S-Corp elected practices, but also LLCs and unincorporated practices that file a Schedule C. This would be a benefit to practice owners who have elected to file as an S-Corp, but may increase taxes on profits earned by practice owners currently operating as sole practitioners to avoid paying corporate taxes.

The likely repeal of the Affordable Care Act (Obamacare), or at least several components of it, may affect the benefits you offer employees. Plan to evaluate your practice’s health insurance plans next year.

Payment of childcare expenses for employees, onsite and otherwise, is proposed to be expanded, which is a consideration for practice owners looking to expand their employee benefits offerings in 2017.

Additionally, many corporate tax breaks could be eliminated.

How Your Personal Tax Liability May Be Affected

For taxpayers who take advantage of itemized deductions such as charitable contributions, property taxes, home mortgage, etc., the plan will cap allowable deductions at $100,000 for single filers and $200,000 for married filers.

An interesting change that may revise the way you conduct tax planning is the significant increase in standard deduction. Depending on your income and the itemized deductions you take, you may find that taking the standard deduction is more beneficial to your tax situation. Here are the proposed amounts for the standard deduction changes:

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To offset the increase in standard deduction, the tax plan eliminates the head-of-household filing status as well as personal exemptions. This is likely to hit single filers with one or more dependents the hardest.

Additionally, the federal estate and gift taxes could be repealed, though a tax on unrealized capital gains (ex: a stock position that is a gain on paper but has yet to be sold for cash) on assets valued at over $10,000,000 could be taxed upon death, before the asset passes to a beneficiary.

If you haven’t already met with your CPA to discuss customized tax planning strategies, now is the time to do so. There are several ways to prepare for 2017, based on your practice revenue, personal income, type of practice, and personal financial situation. Retroactive tax planning is never successful, especially under a new administration, so don’t delay.