Trump tax plan: What is the AMT, tax repatriation, the death tax?

Credit: Carolyn Kaster

Credit: Carolyn Kaster

President Donald Trump on Wednesday announced a proposal to drastically cut taxes for corporations and simplify the tax filing system for individuals.

Companies would see a business tax rate of 15 percent, down from 35 percent, and individuals would benefit from a doubling of the standard deduction and a simplified form to fill out on tax day each year.

Here is what was proposed on Wednesday:

Reduce the seven tax brackets to three brackets of 10 percent, 25 percent and 35 percent.

Double the standard deduction.

Increase tax relief for families with child and dependent care expenses.

Eliminate targeted tax breaks for the wealthiest taxpayers.

Keep mortgage interest and charitable gift tax deductions, but eliminate other itemized deductions.

Repeal the alternative minimum tax.

Repeal the "death tax."

Drop the business tax rate from 35 percent to 15 percent.

Implement a one-time tax (a repatriation tax) on trillions of dollars held overseas.

What does it mean?

Tax bracket
Tax brackets indicate the rate at which you pay on portions of your income.

Taxpayers will pay the lowest rate up to a certain amount, the next highest rate on the next portion, then the highest rate on the rest of their income.

As an example using the tax rates suggested by Trump – 10, 25 and 35 percent -- income from $1 to $10,000 would be taxed at 10 percent; $10,001 to $20,000 at 25 percent; and income over $20,001 at 35 percent.

Standard deduction
The standard deduction is a set amount of income that is not subject to being taxed.

A taxpayer can choose to use the standard deduction or can itemize allowed deductions to lower a tax bill. Single taxpayers can claim a $6,300 standard deduction; married couples can take a $12,600 deduction and a person filing taxes as “head of household” can deduct $9,300.

Alternative minimum tax 
According to the Tax Policy Center, the alternative minimum tax "operates alongside regular income tax. It requires many taxpayers to calculate their liability twice – once under the rules for the regular income tax and once under the AMT rules – and then pay the higher amount.

Originally intended to prevent perceived abuses by a handful of the very rich, it now affects almost 5 million filers.”

The AMT was designed to stop wealthy taxpayers from using too many loopholes to avoid paying taxes.

Death tax
The estate tax, or "death tax," is a tax "on your right to transfer property at your death," according to the Internal Revenue Service. The value of the property and cash you own when you die is calculated and the amount arrived at is taxed. It's good news if you have a small estate: The IRS offers an exemption on the first $5.49 million.

Six states – Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania – impose an inheritance tax. That means that if you live in one of those states when you die, your beneficiaries will likely owe a tax on what you leave them.

Tax repatriation 
A repatriated tax break is an arrangement directed at multinational corporations that offers a one-time tax break on money earned in foreign countries.

U.S. companies hold cash – an estimated $2.5 trillion -- overseas to avoid paying a 35 percent tax on foreign earnings. The last repatriated break taxed foreign earnings at a rate of 5.25 percent.

Trump has proposed that overseas earnings would be deemed repatriated and taxed one time, at 10 percent.

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