As a result of the United States federal elections on November 8, 2016, Donald J. Trump is the president-elect, and the House of Representatives and Senate both will consist of Republican majorities. As a result, it is nearly assured that significant changes to the United States Tax Code will be forthcoming over the next two years, and perhaps as soon as early 2017.
President-elect Trump’s tax plan contemplates an overhaul of the federal income tax, and a complete repeal of the federal estate, gift, and generation skipping transfer taxes. Trump has proposed reducing ordinary income tax rates to three brackets – 12%, 25%, and 33%, respectively, and reducing capital gains brackets to 0%, 15%, and 20%, respectively.
The proposal contemplates increasing the standard deduction amounts for individuals, repealing personal exemptions, strictly limiting and capping itemized deductions, repealing the alternative minimum tax, and repealing the 3.8% net investment income tax. Trump further proposes reducing the corporate tax rate to 15% (while presumably retaining taxation of shareholder dividends) and eliminating deductions for most corporate tax expenditures other than research and development. Additionally, contributions of appreciated property to private foundations may trigger capital gains under the Trump plan. The Republican House also released a comprehensive tax “blueprint” on June 24, 2016 with similar proposed changes to the tax code.
From a planning perspective, nobody can predict what the law will look like in the near future. Even if the estate, gift, and generation skipping transfer taxes are repealed, the President-elect has proposed various alternatives at various times, including a “carryover basis” scheme and a capital gains tax at death (subject to various applicable credits). Further, many business owners who have recently begun to engage in various sale or gifting arrangements to take advantage of apparently expiring valuation discounts may wish to rethink or retool their strategy. As your tax and legal advisors, we will be monitoring upcoming tax changes, and we will be forming new strategies to best serve you and your needs. If you have any questions about the future, please reach out to one of us and we can discuss your specific situation and how it may be affected in the coming months and years.