Tax Alert: President-elect Trump’s tax reform proposals, year-end planning, and beyond
With any new administration, questions frequently arise about how the policy discussions of thecampaign will translate into the day-to-day operations of the federal government. This election is noexception. President-elect Trump and the Republican majority in the House of Representatives haveboth published proposals that outline similar ideas for tax reform. It’s very rare for any proposals likethese to make it into law unchanged, but the plans are a good place to start when we think about whattypes of changes will be considered in the coming year.
We recently released a post-election tax policy update outlining President-elect Trump’s statementsand proposals on taxes and tax policy during the campaign. But what do these potential changes meanfor 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 payon their income. Both propose a three tier rate structure as opposed to the current seven-tier systemwith a top rate of 33 percent. The income thresholds where each new rate kicks in would vary based onfiling status. Both plans also aim to do away with the current system of combined personal exemptionsand standard deductions in favor of a significantly larger standard deduction. Both the AlternativeMinimum Tax and the 3.8 percent Net Investment Income Tax appear likely to be repealed under eitherscenario.
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 ofproperty 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 percentrate on corporate income, while the House GOP suggests 20 percent. Both proposals would eliminatethe 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 wouldeliminate most business tax credits except for the research and development credit and would allowU.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 andaccelerating deductions. While those two steps comprise the foundation of basic tax planning in mostyears, they’re of particular value in a year when there’s a possibility of tax rate reductions in the nextyear. Individuals in the highest bracket this year will pay tax at 39.6 percent, while the same dollarsmight be taxed at only 33 percent if Mr. Trump is successful in implementing the lower rates he hasproposed.
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 nextyear.
- Selling assets from your investment portfolio that have unrealized losses to offset capitalgains realized during the year.
- Maximize pre-tax retirement plan contributions to 401(k), 403(b), SIMPLE and traditionalIRA plans.
- Use appreciated securities to make year-end charitable contributions that would bedeductible based on the fair market value of the securities while avoiding recognition ofthe 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 andbeyond. Here’s a brief overview:
- Our post-election tax policy update >>
This 8-page alert discusses some of thestatements 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 notextended.
- Our post-election uncertainty complicates year-end wealth transfer planning for 2016and beyond >>
This alert projects what a repeal of the estate tax, as advocated byPresident-elect Trump and numerous leading Republicans, could mean for estateplanning. It describes the impact that Trump policies might have on proposed regulationsregarding the valuation of assets when family-controlled businesses are transferred. Italso offers some specific suggestions for year-end moves before 2017 that could have apositive impact on your estate plan.
No law is ever a certainty until it’s enacted, but the election of Donald Trump along with Republicanmajorities 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 contactyour 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 renderinglegal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever inconnection with its use.