President-elect Trump has posted his tax proposals on his website. Although we are unable to say with certainty whether any of these proposals will be enacted, we address three of his proposals and our suggestions. Any of these proposals, or some version thereof, may be implemented sometime in 2017 and be retroactive to January 1, 2017.
1. One proposal provides for lower income tax rate brackets, by reducing the top income tax rate to 33% from 43.4%, and lowering the effective rate to tax capital gains, interest and dividends to 20% from 23.8% (eliminating the 3.8% tax on net investment income).
What to do: If you are contemplating a transaction that would result in the recognition of significant income, such as the sale of appreciated assets, you might consider deferring the transaction until 2017.
2. Another proposal is stated on the website as follows: “…contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be disallowed.” It is unclear as to whether this proposal applies to contributions only at death or to gifts made during lifetime.
What to do: If you are planning to make significant gifts of appreciated property for which you get a fair market value deduction, such as publicly traded stock, to your private foundation in the near future, you may want to consider accelerating your gifts into 2016. If you are planning to make substantial gifts at death to a private foundation, you may want to consider naming a public charity as an alternative in case you are not able to amend your estate plan if this proposal is enacted.
3. Another proposal is to cap the amount of itemized deductions to $100,000 for single taxpayers and $200,000 for married joint filers. This proposal may significantly limit the use of large charitable contributions as deductions.
What to do: If you are planning on making large charitable contributions over the next several years, you may consider accelerating the contributions to 2016.