Tax Planning tips in Trump’s Presidency
The election of Donald Trump to the presidency of the USA and the control of the Republican party over Congress and Senate will create a consolidation of power very useful for the implementation of a tax reform perhaps in the first 100 days in office. House Speaker Paul Ryan will make a good team with President elected Donald Trump to cut taxes in 2017.
Trump tax plan will change the tax code dramatically, reducing the income tax brackets from seven to three, reducing business income tax to a flat 15%, eliminating the estate tax, increasing the standard deduction and eliminating the personal exemption. The details of Trump’s tax plan read them here.
Changes to tax brackets will impact over the entire spectrum of income: salaries, dividends, business income, rents, retirement, etc. as well as one-time income disbursements such as employee bonuses and business purchases. Here, a tax planning strategy comes handy: if you will receive a bonus in 2016, plan to defer it to 2017 or until 2018 will save you 7% in taxes. Also if you own capital assets, such as stocks or real estate, it will save you approximately 5% if you sell them in 2016.
Charitable deductions is another item to consider. Under the current tax law, there is a cap of $300K for MFJ to deduct dollar for dollar your donations. Trump’s tax plan will reduce the limit to $200K for MFJ. If you plan to give to charity a big donation, do it in 2016.
Business income under current tax law is taxed at your marginal tax rate. If you are self-employed there is an additional 15% of self-employment tax. With Trump’s tax plan either will be tax at a single rate of 15%. Even lower than the marginal tax rate that you pay as an employee. A good idea to evaluate will be arranged with your employer a consultancy contract for 2017 and save, depending on your income, between 10 and 15% in taxes.
Business asset purchases will also be affected by Trump’s tax plan: 100% deduction is proposed for all purchase of assets and equipment for business use. Under the current tax code, business owners run to buy business assets as much as possible in the current year to maximize deduction. It will be better if you wait for 2017 to go capital assets shopping. Combined with the 15% business income tax, this looks very promising for lower tax payments.
Finally, the estate tax, the one that millionaires pay to transfer their estate over $5.45 million to their children and currently at 40%, under Trump’s tax plan is to be repealed. But timing this tax for 2017 is difficult because we cannot time death, even though death and taxes are the ultimate certainties in our life.
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