Dec 21, 2016 Proposed Taxes in 2017

Proposed Taxes in 2017

One of the biggest financial implications of the 2016 election outcome could be the potential effect on tax legislation.  2017 could be the first year of major tax reform in quite some time.  It remains to be seen if any of the potential changes being discussed have a chance to be implemented; however, there are proposals by the Republican House of Representative members and President-elect Trump that are designed to reduce the number of tax brackets, restructure capital gains treatment and increase the standard deduction. For most married taxpayers filing jointly, these changes, if adopted,  would result in Lower income taxes in 2017.

Currently, we have a seven tiered tax bracket system.  The House and Trump proposals seek to reduce this number to three tax brackets: 12%, 25% and 33% – a far cry from the current top marginal bracket of 39.6%.  We are expecting to see the size of the brackets in the single taxpayer bracket decline, resulting in potentially higher taxes.  There is also no “head of household” designation in either proposals.

In the area of capital gains, there could be a couple of changes.  Both the incoming Trump administration and the House Republican proposals seek to eliminate the 3.8% net investment income tax on passive income over $250,000 for those married couples filing jointly.   This tax was added to the existing 0%, 15% and 20% long term capital gains rates based on a taxpayer’s bracket.  Under president-elect Trump’s proposal, the 0%, 15% and 20% brackets would stay in place.  Under the House Republican plan, we would move to 6%, 12.5% and 16% capital gains rates.

There may also be implications for standard deductions in 2017.  The proposals include raising the standard deduction to $12,000 for single taxpayers and $24,000 for married taxpayers under the House Republican plan and $15,000 and $30,0000 respectively under Trump’s plan.  This is a big jump from the $6,300 for individuals and $12,600 for couples in 2016.

With these larger standard deductions in mind, however come proposals to limit itemized deductions.  President-elect Trump’s proposal caps itemized deductions at $100,000 for single and $200,000 for couples while the GOP bill would eliminate virtually all deductions save charitable deductions and mortgage interest.  If you are considering major charitable contributions in the next couple of years, this may be a reason to accelerate those contributions in 2016.

This is just a quick summary of what 2017 planning could look like and what we are watching in the coming months.  These proposals have impacted our advice to defer income, make Roth conversions and accelerate the timing of charitable contributions for appropriate clients.  If you have questions or would like to see how this fits into your plan, please contact our office.



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