YEAR-END TAX PLANNING WITH PRESIDENT-ELECT TRUMP
When performing your year-end tax planning, it is important to review your current year information (2016) and project your next year (2017), so that you can determine whether-or-not you should accelerate income into the current year. If you are likely to receive a year-end bonus or sales with capital gains, consider postponing as much income to future periods as possible. Consider also paying medical expenses, property taxes, state income taxes and charitable contributions in the current year. This year is especially challenging because Congress has yet to act on a host of tax extenders that expire at the end of 2016. Some of these tax breaks may be extended, but Congress may not decide the fate of these tax breaks until the very end of 2016 and, possibly, not until 2017. Adding to your 2016 tax planning challenge is the fact that the United States now has not only a Republican majority in both houses of Congress but in January of 2017, a new Republican President will be in office.
President-Elect Donald Trump will be the 45th President of the United States. We do not have any details of President-Elect Trump’s expected tax law changes, which could greatly impact your 2017 tax planning and thus, influence your 2016 year-end decisions. However, I have compiled a few of the proposed tax law changes based on Mr. Trump’s campaign speeches that may help you have some insight into the direction of the tax laws. During the campaign, President-Elect Trump proposed the following:
- Individual Income Taxes – Trump would like to reduce the current seven individual income tax brackets down to three tax brackets. The 10% and 15% brackets would become the 12% income tax bracket, the 25%, and 28% brackets would become the 25% tax bracket, and the 33%, 35%, and 39.6% brackets would become the 33% bracket. For taxpayers filing single, the first $37,600 would be at the 12% rate, then up to $112,500 of taxable income would be at 25%, and above $112,500 the tax rate would be 33%. For taxpayers filing married filing jointly the first $75,000 of taxable income would be taxed at 12%, then up to $225,000 the tax rate would be 25%, and above $225,000 the tax rate would be 33%.
- President-Elect Trump talked about increasing the standard deduction amounts. The standard deduction amount for single individuals would rise to $15,000, and $30,000 for married filing jointly. Itemized deductions would be capped at $100,000 for singles and $200,000 for married filing jointly.
- Personal exemptions would be eliminated.
- Regarding long-term capital gains: Tax rates for assets/investments held longer than one year, the tax rate would remain capped at 20% along with the tax on qualified dividend income. The President-Elect would likely repeal the 3.8% net investment income tax and repeal the Affordable Care Act (Obamacare) and replace ACA with something new.
- Alternative Minimum Tax – For both individuals and corporations, the alternative minimum tax, would be repealed if Trump has his way.
- Corporate taxes – President-Elect Trump has proposed capping the corporate income tax rate at 15%, with most incentive deductions and credits eliminated. The Republicans in the House of Representatives have suggested a 20% corporate income tax rate. The current top tax rate for corporations is 35%, so a more realistic top corporate income tax rate could end up closer to 25%.
- For multi-national corporations, Trump has proposed a one-time deemed repatriation tax of 10% to be levied on corporations with cash held offshore.
- Estate and Gift Tax – Donald Trump would push for the estate tax to be repealed except for capital gains exceeding $10 million that are held until death (no stepped-up basis). Currently, more than 99% of all taxpayers are exempt from the estate tax because the exemption amount for singles is $5,450,000 and for married couples with proper estate planning $10,900,000.
- The gift tax and generation-skipping tax would also be repealed per the President-elect.
President-Elect Trump is expected to move quickly regarding tax reform. After taking the Oath of Office, this should be one of Trump’s top agenda items in his “100 Day Plan”. However, the House and Senate will make sure they get plenty of media coverage and could easily take all of 2017 before any tax legislation is ready for the new President to sign. Even without a “super-majority” in the Senate (60 votes), the Republicans can use the same budget reconciliation rules that George W. Bush used in 2001 to make tax changes with just a simple majority. So, keep all of this in mind when making your final 2016 year-end tax planning decisions.
If you have any questions about these proposed tax changes and how they may affect you or your business, please do not hesitate to call Greg Sinacori at 702-597-1945, or check our website for up to date tax changes: www.hilburn-lein.com.
Greg Sinacori, CPA
Hilburn & Lein, CPAs