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Prepare for tax changes under Trump
The nation has entered that period between an election and the enactment of policy changes promised by a new presidential administration.
While many of the policy issues are still questions marks, it seems highly likely that a Trump administration and a Republican-controlled Congress will enact significant and meaningful tax reform.
The details will likely change as the legislative process shapes new tax policy, but here are two items that business owners and individuals should prepare to address. Remember, your tax strategy should not be a reactive, short-term approach, but a long-term plan that foresees potential tax policy shifts and proactively prepares your business or estate for these changes.
Some deductions will be limited
One of the impacts of the simplified tax code proposed by the Trump administration and some Republican leaders could be the reliance on itemized deduction — a staple of tax strategy for individuals for decades.
Initial tax plans by the Trump administration point to a cap on itemized deductions and an increase in the standardized deduction. This will have an impact on those individuals.
What does this mean for tax strategy? If you are considering large charitable contributions and still want to reap the tax benefits of itemizing that deduction, some individuals may explore speeding up those contributions so that they count under the current itemized deduction tax rules. Even if you are not ready to disburse all the funds to nonprofits or foundations, individuals can take advantage of tools such as donor-advised funds to make the charitable contributions now, and then disburse the donations over a longer period of time. These instruments have additional advantages such as allowing donors to deduct the fair market value of an appreciated asset.
Most tax rates will decrease
Trump’s tax plan calls for a corporate tax rate of 15 percent, which is less than half of the current 35 percent rate. While this, on its face, looks like a huge tax cut, it is important to note that few large companies pay anywhere near the current corporate tax rate because of global tax strategies that move profits to international business subsidiaries. Still, this lower corporate tax rate would be meaningful for thousands of businesses that don’t have an international presence to lower their corporate tax liabilities.
It should be noted that the U.S. is not the only country pushing for lower corporate tax rates. The U.K., Japan, Canada, among many other countries, are lowering their corporate tax rates to attract new business in a globalized economy.
Apart from corporate tax, Trump has also hinted at eliminating the estate tax. This is a popular position for many who see the “death tax” as a double taxation of assets as they are passed from one generation to another. At a minimum existing estate tax exemptions will be held at their current thresholds.
Business owners and individuals should not make any quick decisions based on predicted changes to the tax code. But they should keep in mind the changing tax policies that could directly impact estate planning, business investment and investment strategy.
John Solari is the managing partner of J.A. Solari & Partners. He has 25 years of accounting experience and is also a member of the American Institute of Certified Public Accountants and the Nevada Society of Certified Public Accountants.