What Implications Could the New President Have on My Taxes?
Q: President Trump has talked about tax changes, what do I need to know and should I be making changes based on what he has discussed?
A: When he was on the campaign trail, now-President Trump made numerous campaign promises. One promise that seems to have been lost in the shuffle is tax relief. President Trump’s tax plan was long on themes and short on details which is common in any campaign. While this approach works for winning the White House, it makes tax planning nearly impossible. With the only guidance for future tax laws being rumor and innuendo, the most prudent tax planning is patience.
Why patience? With a Republican president and control of both houses of Congress, taxpayer favorable changes to the existing tax laws are very likely. It’s the uncertain timing of these tax law changes that makes patience a virtue for tax planning this year. All signs indicate that individual marginal rates for the highest tax brackets are likely to decrease. The current thought is that the highest marginal income tax rate for individuals will decrease from the rate of 39.6 percent under current law to 33 percent under the new law. Trump has also vowed to abolish the alternative minimum tax (AMT).
Additionally, the current expectation is that the 3.8 percent tax on Net Investment Income will be eliminated. We are not sure if these potential tax law changes come into effect during 2017 or 2018 or if that will happen at all for that matter.
Perhaps the most important thing from a planning perspective is to understand the more general implications for legislation going forward: taxes overall will very likely decrease. If that is the case, you may want to consider deferring income where possible and accelerating your deductions. By deferring your income into future years where tax rates are lower you should save on taxes. Accelerating deductions while tax rates are higher will yield you a greater tax savings as well, especially if Trump plans on limiting the amount of itemized deductions as part of his plan.