Did you realize the U.S. income tax code has not had a major overhaul since 1986? 

Now that the Affordable Care Act reform effort appears to be behind us, Washington has indicated an area of focus on tax reform.

What will it look like? That is tough to say. 

I’ll do my best to summarize various items that have been discussed.  Keep in mind that you should only make tax planning moves and implement tax strategies around the current tax code, not guess the future. 

Some of the proposals include:

• A border tax on imports into the United States. This was a high priority item early on, but latest releases and pushes have indicated this will most likely fall by the way side.
• Business Income Tax Rate Cuts. There have been proposals to lower business tax rates on C corporations and flow through entity income (K1s for S corporations and partnerships) to have their income taxed at 15 percent. This could be a significant tax savings, as the top tax rates currently are around 39 percent.  If the flow-through rate becomes the case, you’re going to see even more of a reason not to be taxed as a sole proprietor. If this change goes through, then in some circumstances it could make sense for people to shift from being an employer to self-employed.
• Individual Income Tax Rate Cuts. In general, they would like to lower income tax rates across the board. Interestingly enough, President Trump recently indicated he might not be so willing to do so with the highest income levels.
• Simplify the Tax Code. There have been discussions of simplifying (i.e. eliminating) deductions and credits. Some proposals are to raise the standard deduction and to potentially do away with the mortgage interest deductions and/or charitable contribution deductions.  You can imagine the forces and dollars at stake that will be fighting some of those changes.
• Immediately Be Able to Expense Capital Assets.  Proposals have been made to allow companies to immediately expense capital asset purchases, such as large machinery, equipment and vehicles. The flip side of this is they may do away with the business interest deduction.

There will be some challenges related to implementing tax changes. As you know, there have been challenges in Washington of arriving to consensus. Will all the necessary parties get on the same page? 

In addition, the tax proposals - along with the proposed budget - will most likely need to be revenue neutral. Technically a budget doesn’t have to be, but it is a much more difficult process if it is not, and would stray from core principals of not increasing the deficits.

My goal today was to update you on potential tax law changes. If you have any questions, concerns or feedback, please feel free to reach out to me.