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The Trump Plan: The Future of the United States Corporate Taxes

by DMA Staff | Dec 22, 2016
The Trump Plan


THE TRUMP PLAN

Americans have cast their votes, and President-elect Donald Trump will be taking office soon. With a vision for major tax rate reductions across the board, let’s take a look at the “Trump Plan” for the US tax policy and what it could mean for your business if these changes come to pass.

Corporate Income Tax Rate Reduction

Possibly the Trump Plan’s most important change for businesses would be to decrease the corporate income tax rate from 35 percent to 15 percent and begin the taxation of pass through entities at the same rate. This would be a potentially significant development because US entities are currently discouraged from adopting C corporation status due to double taxation of income (i.e., tax at the corporate level and at the individual level). However, a substantially lower rate along with adoption of a pass through level tax would make C corporation status less costly, and a much more viable option for many businesses.

Repatriation of Offshore Corporate Profits

The Trump Plan would allow repatriation of corporate profits currently held offshore, subject to a one-time, 10 percent tax. With many businesses having effected tax inversions (i.e., relocating a company’s headquarters outside of the US to reduce its income tax burden), the Trump Plan would provide them with an incentivized opportunity to return cash to the States.  State treatment of this possible repatriation should vary, if the last round of special repatriation of offshore profits is any indication. If so, tax departments will need to be aware of the potential implications on their state income tax burden and effective tax rate.

Elimination of Corporate Tax Expenditures

You may have heard about the president-elect’s crusade to “drain the swamp” or rid Washington of corruption. His first step toward accomplishing this would be to eliminate most corporate tax deductions and credits, except Research and Development, with a focus on “loopholes.” Though his intentions may be to eliminate special interests from Washington, this move may have unanticipated effects on certain industries and businesses, depending on deductions and credits targeted. As with many expenses, states may allow a deduction for certain expenses not allowed federally. This could lead to an increased compliance burden in determining the various treatments states may adopt.

US Manufacturing

If your firm is engaged in manufacturing in the US, the Trump Plan would allow you to expense capital investment but you may lose the deductibility of corporate interest expense. As this is an election at the federal level, not all states may follow the procedure. As part of the federal election, an option to revoke can only be made within three years of the initial election. If the election is revoked, taxpayers will need to file amended federal returns, which in turn, would necessitate filing amended state and local income tax returns.

With inauguration day fast approaching, we’ll soon see which of these changes come to pass and how they will impact businesses nationwide.

Please do not hesitate to contact your local DMA office should you have specific questions or requests.

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