Too Soon to Tell: President Trump’s Proposed Tax Plan (Las Vegas Business Press)
As published in the Las Vegas Business Press
 5/8/2017

If taxes were a sport, discussing President Trump’s proposed tax plan would be akin to ESPN analysts hashing out potential trade deals in the off-season and discussing the potential outcomes of each speculative scenario without certainty. It is too soon to make large tax decisions about Trump’s announcement, but we can theorize on how the potential tax cuts and new tax brackets may affect our Las Vegas community. Trump’s plan is not even close to being a bill and though his advisors promise to get the tax reform “done this year,” we may be filing our 2017 taxes with no changes.

To summarize the plan, U.S. National Economic Director Gary Cohn and Treasury Secretary Steven Mnuchin revealed "core principles" of the President's tax reform plan. Items that stood out for businesses included cutting the corporate tax rate to 15 percent and reducing some components of the top tax rate for pass-through businesses and individuals from the previous rates of 39.6 percent to rates starting at 10 percent.

The reduction in corporate income tax is insignificant for the majority of U.S. taxpayers since most do not operate in the C-Corporation (C-Corps) tax arena but are pass-through entities, by choice. Most C-Corps are either publicly traded or set up many years ago, with advisors who cannot easily change their structure. Most new businesses choose a different entity structure because C-Corps still have a built-in double tax when dissolved and are always dealing with year-end compensation to zero out taxable income.

The larger portion of taxpayers will be impacted by tax changes for pass-through entities, like LLCs or S-Corps, since all of their taxes are paid on the individual tax returns. The proposed plan doesn’t spell out how the new reduced tax rates will coordinate with those self-employment taxes and individual tax rates. This change will be very difficult to implement due to the sheer volume of taxpayers affected.

In the proposed plan, the current seven individual income tax rates will reduce to three: 10 percent, 25 percent, and 35 percent. Removing the 15 percent bracket is an unusual move, but it is consistent with the comments during the Trump campaign related to almost doubling the standard deductions for those who don’t itemize their deductions. This may remove some itemizers and the tax options for certain deductions (which were not explained in the plan announcement). This new, larger standard deduction would primarily affect low-income returns for taxpayers who typically don’t own homes and have no mortgage interest, or individuals residing in high state tax locations where they never itemized in the past.

In addition, the possible repeal of Alternative Minimum Tax is a big deal since it has been discussed for years as unnecessarily affecting many taxpayers. The announced tax plan’s reduction in individual tax rates and increased standard deductions will affect large amount of taxpayers, primarily low income tax payers.

The proposed removal of estate taxes primarily affects only a limited number of estates. Due to careful tax planning, only a small amount of estates actually pay tax. The increase of estate exemptions and the possible repeal has been discussed for years; this current plan is just a follow-through of previous attempts. Most professionals believe it will not happen without a major change in congressional committees. Remember, a presidential announcement is much different than committee discussions in U.S. Congress and the Senate, and are certainly even more removed from the any tax Bill.

Lower taxes for local businesses would be a welcome change, as rising healthcare costs, a potential increase to minimum wage and inflation wear heavily on business owners as they try to make a profit and maintain a workforce.

Much like the first discussions about bringing a professional sports team to Las Vegas, it may be years before the proposed tax cuts presented by President Trump come to fruition. Stay tuned for more information as this chapter of tax reform unfolds in our country. This will take time, but I am hopeful that we will see some pro-business changes with a simplified tax structure that will benefit Southern Nevada. After all, Las Vegas now has TWO professional sports teams coming to town, so small discussions can sometimes lead to big outcomes.

Scott Taylor, CPA is a Shareholder with Piercy Bowler Taylor & Kern, the largest locally-owned accounting firm in Las Vegas, now with offices in Reno and Salt Lake City. He has never seen a three-pointer that he didn’t want to take (plus he’s always up for a good jump shot). Although he is a BYU grad, he cheers for his hometown Runnin’ Rebels and has had season tickets for the past 40 years. Contact Scott at staylor@pbtk.com with any questions about tax planning or preparation strategies.

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