Every presidential administration promises some sort of significant tax reform. While the promise is almost always that the impact will be beneficial to the ordinary taxpayer, issues and unintended consequences usually arise.
Michigan residents will nevertheless wish to pay attention to new changes in the law.
The new proposals promise reform regarding a wide variety of things including:
- A simplification of the current tax bracket setup. Per the new proposal, the government would reduce the number of tax brackets from seven to three. The rates for each tax bracket would be 12 percent, 25 percent and 35 percent
- There would be an increase of current standard deduction to $12,000 for individuals and $24,000 for families. This would thus reduce the amount of income subject to federal tax for individuals and families. However, it would also eliminate personal exemptions.
- There would be a reduction of corporate rates to 20 percent from the current 35 percent.
- Small business taxes would not go above 25 percent.
- The estate tax or so-called death tax would go away.
Under the proposals, there may also be a number of changes concerning a variety of international taxation issues. This includes exempting foreign dividends from taxation. It would also impose a one-time tax upon offshore earnings “repatriated” back into the U.S.
What results these changes would bring
Purportedly, these changes would make American corporations more competitive. However, the proposals would also supposedly prevent corporations from moving profits around overseas to lower-taxed countries. This would occur by placing a tax at a reduced rate upon these foreign profits.
As we have said many times on this blog, taxes are complex. Even plans to simplify the paying of taxes never seem all that simple. It is important not to make assumptions when it comes to taxes, and that’s why the tax advice of a skilled attorney can be so helpful. Mistakes on returns can lead to audits, fines and even criminal penalties.