Tax Planning Implications of a Trump Presidency
Wednesday, November 23, 2016

          Due to the recent shift in the political landscape, it now appears very likely that the 2017 and/or the 2018 tax years will bring many significant changes to your tax planning. Look for tax legislation to happen within the first 100 days of Mr. Trump's presidency. Tax law is created by Congress, so President-elect Trump's tax plan probably will not be implemented exactly as he has announced on his website;  However, there are so many similarities between his plan and the plan prepared by the Republicans in the House of Representatives that we can make some educated guesses about what is likely to happen. In this newsletter, we have created a list of some of the more likely changes for individual tax returns - and what that might mean for you in your tax planning. Also stay tuned for our next newsletter, which will discuss anticipated business tax changes.

Potential Changes:

Lower Individual Tax Rates:

  • Trump's Tax Plan: The plan will collapse the current five tax brackets into three brackets. For Married Filing Joint filers, the brackets and rates are:
    • Taxable income less than $75,000:  12%
    • Taxable income between $75,001 and $225,000:  25%
    • Taxable income more than $225,000: 33%
  • Observation (from Trump's Tax Policy Fact Sheet):
    • A married filing joint taxpayer earning $75,000 per year with two children and $10,000 in child care expenses will receive a 30% reduction on their tax liability. (Note: when we recalculated the savings we calculated a tax savings of approximately 12.5%)
  • Planning:
    • ?Once a person has taxable income greater than $75,000, consideration should be made to postpone all income possible to 2017.
    •  Consideration should also be taken to accelerate as many deductions as possible into 2016
    • Accelerating both property taxes and state income taxes into 2016 is a little more complicated as the Alternative Minimum Tax rules may preclude the benefit of the deduction of such taxes in 2016.  Please consult with us if this is something you wish to consider with your 2016 tax planning.
    • Since the lower rates will not apply until the 2017 tax year (at the earliest), most of you should consider deferring income until next year and advancing expenses into the 2016 tax year.

Friendlier Investment Income Taxation Rules:

  • Trump's Tax Plan: Currently, investment income from interest is taxed at ordinary rates, and long-term capital gains (such as sales of stock held for more than one year) are taxed at lower, more favorable rates. Trump has indicated that he will keep capital gains rates similar to those that currently exist, but also plans to repeal the 3.8% net investment income tax associated with the Affordable Care Act. He also intends to repeal the Alternative Minimum Tax which subjects most capital gains to additional taxation.
  • Planning: Consider deferring any sales or receipt from installment sales of appreciated stock, real estate, or other assets into the 2017 tax year.

Child Care:

  • Trump's Tax Plan: The plan will provide hefty tax savings for working joint and single filers with significant dependent care costs. He will make the child care deduction much more beneficial to all persons making less than $500,000 ($250,000 for single filers). He will also expand the child care deduction for eldercare. His plan calls for a "Dependent Care Savings Account" similar to the IRA rules allowing a $2,000 per year contribution. To encourage lower-income families to establish this account, the government will match 50% of parental contributions, up to $1,000 per year.

Estate Tax:

  • Trump's Tax Plan: Under this plan, estate taxes would be completely eliminated. 

        Keep in mind that these are all merely points to think about as you wrap this year, and we do not know if and/or when these changes will become law. While President-elect Trump's tax plan and the plan prepared by House Republicans differ in some specifics, it is clear that tax rates for the 2017 tax year (returns filed in 2018) intend to be lower than they are today.  If you have any concerns while preparing for these changes, please contact us and we can work with you to determine the best way to proceed into next year.

Thank you,