Published by Taylor Financial Group
It’s a New Year with a new President, which means there are tax changes that you should be aware of. Some of Trump’s proposed changes include tax reductions, tax increases, consolidation of tax brackets, changes in capital-gains tax rates, elimination of the Medicare surtax, and reduction in long-term gains tax. Deductions and exemptions are likely to be altered as well. Estate tax and Alternate Minimum Tax amounts may also face some changes. Let’s start by breaking these items down. And, despite the stall of the Republican’s American Health Care Act last week, Paul Ryan assures us that tax reform is still a priority.
Tax Rates
President Trump is committed to reducing tax rates. Currently, seven tax brackets exist, but under President Trump’s proposed plan, the brackets will be reduced to only three: 12%, 25%, and the 33%. The higher income earners are more likely to receive a tax reduction, if any, and those who are the lowest earners may experience an increase. Corporate taxes are also in line for rate reductions. Currently, the corporate tax rate is up to 35%, but it could potentially be reduced to 15% under Trump’s plan. In addition to these reductions, filing statuses may be altered as well. There is a possibility that the ability to file as Head of Household will be entirely eliminated, along with the marriage penalty tax.
Capital-Gains Tax
The capital-gains tax rate is also among the potential changes. Currently, long term capital gains can be taxed at 0%, 15%, and 20%, with an additional Medicare Surtax of 3.8% for some high income taxpayers, increasing the capital gains tax rate to a maximum of 23.8%. Some potential changes may include an elimination of the surtax entirely. Discussions are underway regarding the taxation of long-term gains at a rate of either 20% or 16.5%. Although the numbers are not set in stone as of yet, reductions are certainly on the horizon.
Deductions
Under the new proposals, deductions will be reconfigured. Itemized deductions would only be permitted for mortgage interest and charitable contributions. President Trump will continue to allow all of the current itemized deductions, but would impose a cap on them of $100,000 for single taxpayers and $200,000 for married couples. Unfortunately, this change could result in a negative impact for charitable organizations. Deductions for personal exemptions would be eliminated while the standard deduction amount would be increased. Currently, the standard deduction for individuals is $6,300 and would be increased to $12,000 under the new proposal. The standard deduction for married couples at this time is $12,600, but would potentially be increased to $24,000.
Additional Changes
President Trump is considering removal of the Alternate Minimum Tax in its entirety. Another possible elimination includes the removal of the step-up in basis at death for estates in excess of $10 million. The tax on appreciation would be due only upon the sale by beneficiary and would not be applicable to small businesses.
Many changes are on the horizon, and it would be beneficial to discuss these changes with us and/or with your tax professional. Understanding how these proposals can alter or effect your income, earnings, and retirement plans is critical. Tax planning strategies should be considered as well. Don’t forget, the deadline to file your taxes for 2017 is Tuesday, April 18th!
If you have any tax planning questions or would like to schedule an appointment, please call our office. We are always here to help.
Sources:
Morningstar, Tax-Planning Opportunities Under Trump With New Tax Laws Is Likely Coming, Here’s What Advisors need To Know, by Sheryl Rowling, February/March 2017.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
