During his campaign, President Donald Trump put forth a tax plan that would cap itemized deductions, barring single people from deducting more than $100,000 and preventing couples from deducting more than $200,000. This proposal would help raise more than $1 trillion over the course of a decade.
However, according to the Tax Policy Center, the new policy would only affect about 160,000 individuals, which is a fraction of the nation’s 89 million taxpayers. Meanwhile, only 230,000 couples would be affected out of the 59 million people who file jointly each year. In other words, the taxpayers who would be affected by the proposed cap are ultra-wealthy.
Of the single filers affected, only 50,000 or so make less than $200,000 in expanded cash income. Out of joint filers, only 20,000 make less than the same amount.
As the laws currently exist, approximately 75 percent of all filers take the standard deduction and are exempt from caps on itemized deductions. President Trump’s plan would raise the standard deduction, so the percentage of people itemizing would drop to about 10 percent.
What happens to those affected?
Out of the people who would continue to itemize under Trump’s plan, most would deduct significantly less than the newly implemented cap. Fourteen million of the 14.6 million single people who itemize deduct less than $50,000. Among itemizing joint couples, 22 million of the 25.7 million deduct less than $50,000. Itemizing couples deduct an average of just under $38,000.
The only people who average more than $100,000 in deductions are single people making $1 million or more per year (deducting an average of $440,000) and couples making $1 million or more (an average of $379,000).
A new look for tax plans
The plan Trump has put forth is drastically different from the plan House Republicans put forth in the summer of 2016. Under that plan, most itemized deductions would be repealed, except for charitable giving and mortgage interests. There would not have been any new limits on those few remaining deductions beyond any limits already implemented.
It is also a different plan in several ways from other types of tax limits that Trump recently proposed. President Obama had previously proposed limits to values of deductions and exclusions to about 28 percent.
Overall, while the itemized deduction caps only impact high-income taxpayers, the rest of the plan could potentially affect average citizens as well. On average, the plan cuts taxes significantly more for high-income households than middle- and low-income households. The cap also does not offset the costs of tax rate cuts to individuals and businesses.
For more information about how President Trump’s proposed tax plans could affect your business, work with a U.S. Virgin Islands tax planning attorney.
BoltNagi is well-established and respected tax planning law firm serving individuals, businesses and organizations throughout the U.S. Virgin Islands.