Now that the 2016 presidential election has officially come to an end, many taxpayers want to know which of President-elect Trump’s proposed changes are likely to pass into law. President-elect Trump’s platform is based on the fact that taxes will not increase with this administration. According to his platform, they will likely decrease, which means that tax planning for the 2016 year end and looking ahead to 2017 is more critical than ever.
In our June post, Clinton vs. Trump: How the Election Will Affect Your Taxes, we shared predictions that President-elect Trump’s platform will impact particular areas of tax, including:
- Income taxes
- Estate taxes and planning
- Complexity of tax law
The expectation is that we will see big changes in income taxes. Across the board, President-elect Trump has promised to reduce taxes for individuals and businesses alike.
- The highest tax rate for individuals may decrease from 39.6% to 33%.
- Single people making less than $15,000 a year and married couples (filing jointly) making less than $30,000 a year may not be required to file or pay federal income taxes.
- The highest tax rate for businesses may decrease from 35% to 15%.
- The Alternative Minimum Tax is proposed to be repealed.
- The Medicare surtax (.9% on wages earned and 3.8% on investment income earned for higher income taxpayers) is also proposed to be repealed. The surtax applies to single taxpayers earning more than $200,000 a year and married filing jointly taxpayers earning more than $250,000 a year.
- The new platform may provide for more beneficial depreciation measures than is allowable under current law. In fact, certain equipment purchases may be deductible without limitation in the future.
Estate Taxes and Planning
President-elect Trump plans to eliminate estate taxes, an action that also occurred in 2010 only to be reinstated the following year. Under current law, estates valued at more than $5.45 million are subject to an estate tax rate that can be as high as 40%. The proposal also addresses the potential reduction in the availability of “stepped up basis” available to current estates.
If President-elect Trump follows through on his plans to reduce the number of tax brackets from seven to four and eliminate many deductions, tax law will eventually become less complex for many taxpayers, especially lower-income taxpayers.
Federal Budget and National Debt
Yet to be determined, however, is how all these tax cuts will impact the federal budget. Along with other proposed changes, eliminating the estate tax and lowering income taxes is expected to reduce federal revenue by several trillion dollars over the next decade. President-elect Trump’s plan for recouping the revenue lost by the tax changes will likely impact how many of his proposed changes become reality.
Any time a major tax law change is passed, Cray, Kaiser analyzes potential tax entity and structure changes for all of our business clients. We also address how individual income tax and estate tax changes may affect personal tax strategies. Subscribe here to stay apprised as tax rules are solidified.