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5 tax items on business agenda

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President-elect Donald Trump ran his campaign on a platform of stimulating the economy and bringing back jobs.

Alert: Naturally, several key components of Trump’s tax plan are aimed at spurring business growth. Although there are pros and cons, overall the proposed changes are favorable to the small business sector.

As with individual tax reforms, the plan revealed by the House GOP last year is similar to Trump’s, but with some significant differences. With that in mind, here are five important tax items on the agenda for the new administration.

1. Corporate tax rates: Currently, the corporate tax rate structure features a top tax rate of 35%. Trump has long advocated a flat 15% rate for all businesses, thereby cutting the top rate by more than half.    

In addition, Trump would allow owners and partners in pass-through entities—including sole proprietorships, partnerships and S corporations—to elect to have their business income taxed at the 15% rate instead of individually. Note that the top individual tax rate would be 33%.

2. Repatriation tax: Due to so-called “tax inversions” where corporations relocate their corporate headquarters to a foreign country, the IRS is missing out on tax revenue. Trump has proposed a one-time tax of 10% on repatriated corporate earnings. This “tax holiday” is intended to bring back corporate cash and jobs from overseas, thwart tax inversions and encourage domestic business activity. But some corporations located in foreign tax havens may do better by staying put.

3. Section 179 deductions: Under Section 179 of the current tax code, a business can “expense” (i.e., currently deduct) qualified expenditures, up to a stated maximum (see pg. 6). The maximum deduction for 2016 is $500,000, subject to inflation indexing and certain limitations. (The allowance for 2017 has not yet been announced.) Trump wants to double the maximum $500,000 deduction to $1 million.

4. Manufacturing firms: In lieu of deducting interest expenses, Trump would allow manufacturing companies to expense all new investments. At the same time, he would eliminate the Section 199 “manufacturing deduction” and all business credits, except the research credit.

5. Corporate AMT: Larger corporations are subject to an alternative minimum tax (AMT) similar to the one imposed on individuals. Just like the individual AMT, Trump would repeal the corporate AMT, reducing tax for corporations and simplifying the tax law.

Be aware that the House GOP plan includes immediate expensing of all business investments and a top corporate rate of 20%, as opposed to the 15% rate proposed by Trump, among other notable provisions for businesses. It remains to be seen how these differences will be ironed out in the back rooms in Washington.

Tip: Both Trump and the House GOP favor repeal of Obamacare. This could have wide-ranging implications. 

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