President-elect Donald Trump’s tax reform plan was released earlier this year. The affects on businesses include:
- Reducing the top corporate income tax rate from 35% to 15%,
- Abolishing the corporate alternative minimum tax,
- Allowing owners of flow-through entities to pay tax on business income at the proposed 15% corporate rate rather than their own individual income tax rate, although there seems to be ambiguity on the specifics of how this provision would work,
- Eliminating the Section 199 deduction, also commonly referred to as the manufacturers’ deduction or the domestic production activities deduction, as well as most other business breaks — but, notably, not the research credit,
- Allowing U.S. companies engaged in manufacturing to choose the full expensing of capital investment or the deductibility of interest paid, and
- Enacting a deemed repatriation of currently deferred foreign profits at a 10% tax rate.
Republicans retained control of both chambers of Congress so some sort of overhaul of the U.S. tax code is likely but compromise on some issues will be needed in order to get legislation through the Senate.
With so much uncertainty as to which tax changes will be made and signed into law, it may make sense to accelerate deductible expenses into 2016 that might not be deductible in 2017 and to defer income to 2017, when it might be subject to a lower tax rate.
Of course, there are some risks to these strategies, given the uncertainty as to exactly what tax law changes will be enacted. Contact our team to discuss and develop the best year-end strategy for you.