The November election results came as a surprise to many, so much so that “surreal” is Merriam-Webster’s Word of the Year for 2016.
Setting aside political views, tax practitioners expect the leadership change to have a significant, immediate impact on the country’s tax landscape, with tax reform being a major objective of the Republican establishment. The robust list of potential changes includes simplification and reduction of tax rates, changes to the standard deduction and personal exemption, repeal of the Alternative Minimum Tax, and repatriation of corporate foreign earnings, among others. The House of Representatives released a tax reform blueprint last year that in many ways lines up with President Trump’s tax reform proposals.
Tax Rates
- The President and the House have proposed significant reductions to tax rates, including a drop in the top individual rate from 39.6 percent to 33 percent.
- For individuals, the proposed tax reform would replace the current six tax brackets with three brackets, with rates set at 12, 25, and 33 percent.
- Both plans also include a reduction to the corporate rate from 35 percent to 15-20 percent.
- The 20 percent rate on long-term capital gains and qualified dividends would remain the same under the President’s plan.
Other Proposed Changes
- Itemized Deductions would be capped under the President’s plan at $100,000 per individual.
- Elimination of the personal exemption ($4,050 per person in 2016, subject to phase-outs) would be replaced by an increase to the standard deduction to $15,000 per person ($6,300 per person in 2016).
- The President has also proposed a repeal of the estate and gift tax, with certain exceptions for appreciated property.
- The Alternative Minimum Tax, a supplemental income tax enacted in 1982, would be repealed under the plan.
- Both plans also call for a repatriation tax on corporate foreign earnings, although the rates are terms vary widely between the two plans.
While only time will tell how many of these changes will be implemented, and what the ultimate changes will look like, it is wise to keep apprised of the proposals in order to plan for the changes. Accordingly, tax planning will be top of mind as developments progress in 2017.
We encourage you to contact a Client Advisor with any questions.
Important Disclosures: This article contains general information, opinions and market commentary and is only a summary of certain issues and events that we believe might be of interest generally. Nothing in this article is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any security or investment or wealth management strategy, and you should not make any decisions based on the information in this article. While we believe the information in this article is reliable, we do not make any representation or warranty concerning the accuracy of any data in this article and we disclaim any liability arising out of your use of, or reliance on, such information. The information and opinions in this article are subject to change without notice, and we do not undertake any responsibility to update any information herein or advise you of any change in such information in the future. This article speaks only as of the date indicated. Past performance of any investment or wealth management strategy or program is not a reliable indicator of future results. Portions of this article constitute “forward thinking statements” and are subject to a number of significant to a number of significant risks and uncertainties. Any such forward-looking statements should not be relied upon as predictions of future events or results.