If you are also pondering this question, let’s recap in more detail some of the tax changes Mr. Trump proposed. In addition to Trump’s plan, we will also examine the blueprint delivered by the Ways and Means Committee Republicans (in June 2016) regarding the proposed rebuilding of America. (You can read more about Ways and Means here.)
Individual and Family Taxes
The big ticket is the Affordable Care Act (ACA, otherwise known as Obamacare). ACA allows a large portion of the US population to now have health insurance benefits (acceptance of pre-existing health conditions is one of its benefits). In an effort to fund the plan, in 2013 and 2014 additional taxes and penalties were imposed on individuals, families and businesses.
If the ACA is repealed, we may see the surcharge of 3.8% on investment and the .09% on Medicare eliminated. The cost savings on this cannot be quantified at this time since there are so many moving parts.
The other two big ticket items are the 3 condensed brackets for individuals (12%, 25% and 33%, with a cap to itemized deductions) and a possible end to the Alternative Minimum Tax (AMT).
Under Mr. Trump we anticipate a drop from 35% to 15% in tax rates for corporations. Owners of pass-through companies (for example, LLC, Partnerships and S-Corps) will be taxed at the corporate rate for business income so as to align with traditional corporations. Under the current plan, pass-through businesses do not pay Federal income tax, since taxes are paid by each owner via their personal tax returns. Additionally, under the current tax, a corporation has a 15% – 35% rate (a personal services corporation pays a flat 35%).
So when will these changes take effect?
The answer is we don’t know. However, looking back at history, tax reform takes time before the act (law) is approved and implemented. For example, Obamacare became law in 2010 but was not officially implemented until 2014.
We will continue to keep you abreast of the changes as the new administration takes office.
Tax Planning Under the Current Tax Laws
For now, we still have time to plan under the current tax laws. Tax planning in its simplest form is postponement or avoidance (legally) of taxes. Here are a few ways to achieve that:
- Defer or accelerate income;
- Optimize retirement savings;
- Harvest capital gains/losses;
- Stock option planning;
- Defer or accelerate deductions;
- Changes to withholding or estimated taxes.
Since each company or individual/family tax situation is unique, we cannot possibly list all the areas in this article. Call us at (212) 966-9301 to see if a tax planning consultation is right for you.