H2R CPA Blog

Winners, losers and plans to consider in the Trump Tax Proposal

by Paul K. Rudoy, CPA/PFS

​​The Trump Tax Proposal (TTP) from last week could be a big winner for many.  There are a few who will be losers from the TTP, but many people are likely to be unaffected by what is proposed. The following are key considerations for various parties affected by this proposal.

Proposal, Not Law
This is just the first pitch. This proposal will not be law for many innings to go and the Pirates have a better chance of winning the World Series next year than the TTP becoming law as presented last week.

Small Business
If you are a pass-through entity such as an S Corporation or Partnership, the TTP reduces the maximum tax rate on this income to 25%. This could be a Home Run for you with a drop of 5-20% in Federal taxes.  

Planning Thought: Look at plans to defer income into 2018 and accelerate deductions into 2017.

High Net Worth Individuals
The tax rate drops could be a Grand Slam or at least a big RBI. The TTP drops the top rate by 4.6%. This is for those with taxable income over $470,000, although the TTP warns that there could be an extra type of surtax if income exceeds certain undefined amounts. Many in the 28-35%, taxable income ranging from $153,000 to $470,000, could see income tax rates go down by 3-10%.

The TTP eliminates the painful Alternative Minimum Tax (AMT). This affects many who have large state and local tax payments as well as real estate taxes. A bases clearing extra base hit for many.

The TTP eliminates the Estate Tax. This eliminates the 40% tax on those who die with estates over $5.49M or $10.98M for married couples. Your kids will have more money to go out to the ball game if you are in this category.

Planning Thought: Defer income into 2018 and accelerate deductions into 2017. Finally, hold off on any involved Estate Tax Planning. If you are not in AMT, pay your state and local tax deductions in 2017 as opposed to January or April 2018.

Middle Class Taxpayers
The TTP calls for doubling the standard deduction. That will help most that are not in the upper brackets. What will not help is the elimination of the dependency deduction. For those with large families, this is likely a wash at best. 

Planning Thought: Make your charitable contributions in 2017 as opposed to 2018. A charitable payment in 2018 will provide no tax benefit for many. If you are able to take medical deductions, push those into 2017 as the TTP takes those away.

The Corporate Tax Rate comes down to 20% in the TTP. This is not a major deal for most non-public companies as they rarely pay anywhere near the current top rate of 35%. That is reserved for corporations with income over $10,000,000. Investors care about this, though, as this helps increase corporate earnings, which helps public company stock prices, which helps all of our 401(k) accounts and other market investments.

This also will reduce the number of corporations that go to other parts of the world to save on income taxes.  

Foreign Subsidiaries
The TTP does not specify a tax rate for the repatriation of foreign dividends.  This will surely be in the next round of options. 

Planning Thought: Hold off on bringing dividends back to the United States until you know the new rules. This could be a 20-40% tax savings.

This is just Game 1 of a very long seven game series. Stay tuned for the big hits coming next.