One of the election promises of President Trump was to introduce tax reform in the United States.Therefore, the works on the preparation of the draft of changes are currently pending. The main goal of the reform is to reduce the tax burden of households and businesses. As a result, boosting of take-home pay of the workers, the growth of the US economy and creation of new jobs are expected.

Major assumptions

Major assumptions of the reform are:

  •  Reduction of the corporate tax rate currently in principle equal to 35% (to the level of 15% -20%);
  • Reductionof the number of personal income tax thresholds and changes in the possibilities of deduction (depending on the threshold);
  •  Reductionor elimination of certain deductions and loopholes (especially the ones available to high-income earners);
  •  Introduction of one-time tax on previously deferred foreign earnings (at a significantly discounted tax rate) and adopting a territorial system of taxation;
  •  Implementation of “cash flow” principles which mean immediate expensing of all depreciable and amortizable investments with the simultaneouscap on the deductibility of business interest expenses.
  •  Introduction of border tax adjustment (according to which the companies that import goods would not be allowed to deductcosts of import while the companies that export goods would be able to exclude the export earnings from taxable income).

Sources of financing

According to the US administration’sassumptions, the tax reform should be neutral from the perspective of revenues. Although the significant decrease of the tax rate would result in the lowerincome, other aspects of the reform (such as bringing businesses back to the US, limiting the usage of deductions and loopholes, introducing the border tax adjustment) are assumed to balance the state budget.

Stage of changes and potential consequences

Plans of the reform are still in the form of the assumptions and general outlines. Therefore, its final content remains uncertain. However, this reform might have an important impact for the businesses which operate in the US (and the US businesses operating abroad). Therefore, the entrepreneurs should be aware and prepare themselves for the planned changes in order to be able to verify the potential consequences and opportunities that might be brought by the reform.

Find tax advisors that will help you establish effect of the planned US tax reform for your business.