With any new administration, questions frequently arise about how the policy discussions of the campaign will translate into the day-to-day operations of the federal government. This election is no exception. President-elect Trump and the Republican majority in the House of Representatives have both published proposals that outline similar ideas for tax reform. It’s very rare for any proposals like these to make it into law unchanged, but the plans are a good place to start when we think about what types of changes will be considered in the coming year.
We recently released a post-election tax policy update outlining President-elect Trump’s statements and proposals on taxes and tax policy during the campaign. But what do these potential changes mean for you and your business, and what should you do by year end to prepare?
Tax changes President-elect Trump may enact
Both the Trump and House GOP plans start with a focus on lowering the tax rates that Americans pay on their income. Both propose a three tier rate structure as opposed to the current seven-tier system with a top rate of 33 percent. The income thresholds where each new rate kicks in would vary based on filing status. Both plans also aim to do away with the current system of combined personal exemptions and standard deductions in favor of a significantly larger standard deduction. Both the Alternative Minimum Tax and the 3.8 percent Net Investment Income Tax appear likely to be repealed under either scenario.
President-elect Trump proposes a new cap on itemized deductions of $100,000 for single filers and $200,000 for married couples filing jointly. If this provision were to become law, high-value donations of property like art and land might not generate as much of a tax advantage in the future as they do now. The president-elect would also like to lower the tax rate on corporations. He proposes a flat 15 percent rate on corporate income, while the House GOP suggests 20 percent. Both proposals would eliminate the corporate alternative minimum tax.
The president-elect would impose a one-time “repatriation tax” of 10 percent on overseas earnings that multinational businesses return to the United States. He would eliminate most business tax credits except for the research and development credit and would allow U.S. manufactures to fully expense capital expenditures in the year made. December
The Trump proposal also includes an elimination of the estate tax.
Additional information for House Republican proposals can be found at http://abetterway.speaker.gov.
Tax planning for year-end 2016 and beyond
Plante Moran’s 2016 Year-End Tax Digest includes useful suggestions for deferring income and accelerating deductions. While those two steps comprise the foundation of basic tax planning in most years, they’re of particular value in a year when there’s a possibility of tax rate reductions in the next year. Individuals in the highest bracket this year will pay tax at 39.6 percent, while the same dollars might be taxed at only 33 percent if Mr. Trump is successful in implementing the lower rates he has proposed.
Some common practices for accelerating deductions and deferring income include:
- Paying your quarterly estimated income tax and real estate tax payments by Dec. 31.
- Defer paying or receiving bonuses or other taxable incentive compensation until next year.
- Selling assets from your investment portfolio that have unrealized losses to offset capital gains realized during the year.
- Maximize pre-tax retirement plan contributions to 401(k), 403(b), SIMPLE and traditional IRA plans.
- Use appreciated securities to make year-end charitable contributions that would be deductible based on the fair market value of the securities while avoiding recognition of the capital gain on the unrealized appreciation.
A guide to Plante Moran guidance
Finally, we’ve released several publications this fall in order to help our readers plan for year end and beyond. Here’s a brief overview:
- Our post-election tax policy update >>
This 8-page alert discusses some of the statements and proposals that candidate Trump made about taxes during the campaign. It also lists out some existing provisions that will expire at the end of 2016 if not extended.
- Our post-election uncertainty complicates year-end wealth transfer planning for 2016
and beyond >>
This alert projects what a repeal of the estate tax, as advocated by President-elect Trump and numerous leading Republicans, could mean for estate planning. It describes the impact that Trump policies might have on proposed regulations regarding the valuation of assets when family-controlled businesses are transferred. It also offers some specific suggestions for year-end moves before 2017 that could have a positive impact on your estate plan.
No law is ever a certainty until it’s enacted, but the election of Donald Trump along with Republican majorities in both Congressional chambers seems to suggest that tax rates could be lowered in 2017.
For a discussion about how proposed changes might affect your finances if enacted, please contact your Plante Moran tax professional.
The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.