Post-Election Tax Planning
By Craig M. Steinhoff
Are we in store for monumental changes to the tax code with the new administration?
The election of Donald Trump will have a significant impact on my clients – especially their tax planning. It appears very likely the federal gift and estate tax will be repealed. We may be seeing a capital gain tax at death like there is in Canada or no basis step up at death. Additionally, the IRS’ proposed regulations released in August that would eliminate discounts for lack of marketability and lack of control of closely held business interests are likely dead.
Trump also proposes to reduce the top individual income tax bracket to 33% and a substantial reduction in the C corporation tax rate, possibly to in the 20% range. There is also a proposal to reduce the income tax rate on S corporation and other pass-through income to a 25% tax rate and have a 50% exclusion on capital gains, dividends and interest income. This would reduce the top capital gain and dividend tax to 16.5% from the current 20% top rate and reduce the tax rate on interest income from the current 39.6% rate to 16.5% rate.
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It appears income tax rates are likely to be going down after 2016. Therefore, it would make sense to accelerate deductions to 2016 and defer income to 2017. Trump also proposes to allow equipment and other capital improvements to be immediately deductible rather than be depreciated. If this is true, then deferring capital equipment purchases from 2016 to 2017 may make sense.
Trump also intends to repeal Obamacare which could result in the repeal of the 3.8% Medicare tax on net investment income.
The world has been turned upside down and so my thoughts are:
1. We need to keep close attention to developments in tax proposals and not move too quickly, but still be prepared to react to the possible changes in the tax law.
2. There are likely to be changes that could affect whether businesses should be operated as a pass-through (S corporation, partnerships, LLCs) or a C corporation.
3. Year-end planning for 2016 has become more involved and uncertain.
4. The gift, estate and generation skipping tax is likely to be repealed and so we need to consider whether certain planning we have in process should continue. There will be no absolutes, so what makes sense for some may not be for others.
5. The tax laws do not stay the same, so whatever may happen to the tax laws under Trump does not mean they will be sustained in the future. Therefore, flexibility in planning is always the desire.
[2]Craig Steinhoff, CPA, CITP is the Principal-in-Charge of HBK CPAs & Consultants [3]’ Sarasota, Florida office. Craig has extensive experience in personal and estate planning, charitable planning, tax-exempt organizations, and individual tax and financial planning. He is also a member of the firm’s Assurance Practice Committee and leader of HBK’s Nonprofit Services Group. Craig earned a Bachelor of Science degree in Accounting from Capital University in Bexley, Ohio. He has been with the firm since 2007. Craig may be reached at (941) 957.4242 or csteinhoff@hbkcpa.com [4]. www.HBKCPA.com [3].
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