Issue link: http://viewer.e-digitaledition.com/i/808278
T H E PAT H WAY T O ta x reform may be clearer than ever. During his presi- dentia l ca mpa ig n, President Dona ld Trump advocated for ta x reform and released a detailed plan of changes he would make. Republicans in the House of Representatives also developed a 'blue- print' for tax reform that shares common goals with President Trump's plan. Changes to the individual and corporate tax code could have a significant impact on the medical community, particularly if these changes include a repeal of the Patient Protection and Affordable Care Act (ACA), which imposes a 3.8 percent net investment income tax (NIIT) on capital gains for individuals with net investment income above certain thresholds and an additional .9 percent Medicare tax on indi- vidual wages above certain thresholds. Reform is a priority both for President Trump and Congress, and they are well- positioned to put their plans into action through either bipartisan bills or a budget reconciliation process. Whatever the pathway used, the outcome will likely be a mixture of President Trump's tax plan and the House Republicans' Ta x Reform Blueprint. Evaluating how the provisions align may indicate the shape tax reform takes. TAX IMPLICATIONS OF AN ACA REPEAL A n ea rly executive order a nd budget activities in Cong ress have sig na led that health care reform may be coming soon. Some provisions of the ACA have already been singled out for change. The Consolidated Appropriations Act of 2016 put the ACA's 2.3 percent excise tax on the sales of certain medical devices on hold until December 31, 2017. Repealing the ACA would likely mean the medical device tax would go away, as would the additional Medicare tax and the NIIT. INDIVIDUAL TAX CONSIDERATIONS President Trump's plan and the Tax Reform Blueprint would create three tax brackets: 12 percent, 25 percent and 33 percent. Thresholds in both plans differ slightly, but the effect would be a sig nif ica nt reduction in ta x rates for the highest earners, particularly when combined with a repeal of the ACA. Eliminating the NIIT and lowering the top tax rate could lower the current maximum individual tax rate by 10 percent. Standard deductions would be revisited in both plans as well. The Tax Reform Blueprint combines the standard deduc- tion with the personal exemption to create a $12,000 deduction ($24,000 if filing jointly). President Trump's sta nda rd deduction is slightly higher at $15,000 ($30,000 if filing jointly). Under the House Republican plan, all itemized deductions would be disallowed except for mortgage interest and charitable contributions. President Trump's plan puts a cap on itemized deductions. Both plans call for the repeal of the alternative minimum tax. CAPITAL GAINS The NIIT isn't the only provision being considered that could affect tax treat- ment of capital gains. House Republicans advocate taxing capital gains, dividends and interest as ordinary income with a 50 percent exclusion. If the Tax Reform Blueprint plans are enacted along with the consolidated ta x brackets, capital gains would be taxed in three brackets: 6 percent, 12.5 percent and 16.5 percent. President Trump's plan would lower the capital gains tax so that the maximum rate would be 20 percent. ESTATE TAX Proposed changes to the estate tax may be more easily discussed than enacted, as the estate tax has long been a hotly con- tested issue. The Tax Reform Blueprint and President Trump's plan call for the repeal of the estate tax. President Trump's plan supports taxing capital gains held at death if the gains exceed $10 million. MONITORING LEGISLATIVE ACTIVITY No m a t t er wh ic h t a x c h a n ge s a r e approved, it is highly unlikely that reform w ill be retroactive. Individua ls that plan ahead with gifting, charitable con- tributions or other planning vehicles may be able to ta ke full advantage of revised tax provisions. An experienced t a x a dv isor ca n of fer a ssist a nce i n maximizing available benefits. Fred Lu ecke is th e Health Care & Accounting Services Practice leader for the Northeast Ohio region of CBIZ, MHM, LLC, an independent CPA firm. He provides consulting services to physician practices to facilitate financial accounting and tax functions, strategic decision-making, and business management. n WILL PRESIDENT TRUMP BRING COMPREHENSIVE BY FRED LUECKE, CPA, CMPE TAX REFORM? 2 2