Donald Trump has promised to rewrite the U.S. tax code, much like Ronald Reagan did in 1986. With a Republican House and Senate, a tax code overhaul is likely. Trump’s plan is likely to include:
- Reduction in income tax rates for individuals and corporations. If enacted, the U.S. would shift from one of the highest corporate income tax rates in the world, to one of the lowest (from 35% to 15%). For individuals, the highest tax bracket is now 39.6%, plus the 3.8% net investment tax, for a total of 43.4%. Under the Trump plan, the highest rate would be 33%.
- Elimination or significant reduction of estate and gift taxes.
- Restructuring of tax on offshore income, including deemed repatriation and 10% tax on deferred offshore profits.
- Elimination or partial repeal of the Affordable Care Act (Obamacare), including repeal of the 3.8% tax on net investment income.
- Carried interest may be taxed as ordinary income.
- Income earned through flow-through entities (LLCs and S-Corps) to be taxed at 15% rather than higher individual rates.
Apart from the Trump tax plan, Republican legislators have also offered their own plan which also calls for reduction of taxes.
The above are proposals, not yet law. We can assist you in anticipating the coming tax changes, and planning ahead. Some suggestions include:
- Take charitable deductions now, rather than in 2017, when tax changes could likely make deductions less valuable. The current income tax rates are known and will probably be higher than in 2017.
- If we can expect reductions in income tax and capital gains tax rates next year, consider whether to utilize tax deductions and losses in 2016 and postpone or defer gains and income until 2017.
- Consider an enhanced role for life insurance and an Irrevocable Life Insurance Trust (ILIT). Insurance proceeds are not taxable as income to the beneficiary. Growth within an insurance policy is not subject to income and capital gains tax. If the estate tax will be repealed, insurance could be completely tax-free. (State estate taxes may still apply.) Insurance could thus play an enhanced roll in family planning, legacy planning, liquidity and tax-minimization. An ILIT would add further benefits, including asset protection, creditor protection and extended wealth management for child beneficiaries.