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HOW TRUMP'S TAX PROPOSALS MAY EFFECT YOU
 
Written by:
                       
Patrick Doyle, staff accountant, and Cindy Smith, CPA, CFE
   
As a result of the 2016 election, Becker and Rosen thought it would be a good time to provide some narrative on potential
tax law changes in store for the foreseeable future. Republicans will retain control of both the House of Representatives and the Senate Majority in Congress effective January 3, 2017. And President-Elect Donald Trump (Republican) will take the oval office on January 20, 2017. With that in mind, let’s take a look at the highlights of his tax reform proposal (as of 11/10/2016) and how you could benefit from proper tax planning under each scenario:
                                                                                                              

INDIVIDUALS
 
CURRENT LAW (2016)

TRUMP PROPOSAL
Ordinary Income Brackets
Filing Status Single:
10% ($0 - $9,275)
15% ($9,275 - $37,650)
25% ($37,650 - $91,150)
28% ($91,150 - $190,150)
33% ($190,150 - $413,350)
35% ($413,350 - $415,050)
39.6% ($415,050 + )

Filing Status MFJ (Married Filing Joint):
10% ($0 - $18,550)
15% ($18,550 - $75,300)
25% ($75,300 - $151,900)
28% ($151,900 - $231,450)
33% ($231,450 - $413,350)
35% ($413,350 - $466,950)
39.6% ($466,950 + )

Filing Status HOH (Head of Household):
10% ($0 - $13,250)
15% ($13,250 - $50,400)
25% ($50,400 - $130,150)
28% ($130,150 - $210,800)
33% ($210,800 - $413,350)
35% ($413,350 - $441,000)
39.6% ($441,000 + )



Filing Status Single:
12% ($0 - $37,500)
25% ($37,500 - $112,500)
33% ($112,500 +)





Filing Status MFJ (Married Filing Joint):
12% ($0 - $75,000)
25% ($75,000 - $225,000)
33% ($225,000 +)





Filing Status HOH (Head of Household): Eliminated
LT Cap Gain and Qualified
Dividend Brackets

Filing Status Single:
0% ($0 - $37,650)
15% ($37,650 - $415,050)
20% ($415,050 +)


Filing Status MFJ:
0% ($0 - $75,300)
15% ($75,300 - $466,950)
20% ($466,950 +)


Filing Status HOH:
0% ($0 - $50,400)
15% ($50,400 - $441,000)
20% ($441,000 +)

An individual’s rate on ordinary income (see above) determines rate at which LT cap gains and qualified dividends are taxed (0%, 15%, or 20%)


Filing Status Single:
0% ($0 - $37,500)
15% ($37,500 - $112,500)
20% ($112,500 +)
 

Filing Status MFJ:
0% ($0 - $75,000)
15% ($75,000 - $225,000)
20% ($225,000 +)

                       
Filing Status HOH: Eliminated




Existing structure is maintained, using brackets above to determine rate at which LT cap gains and qualified dividends are taxed (0%, 15% or 20%)




Net Investment Income Tax
(3.8% under ACA)

Additional tax of 3.8% imposed under the Affordable Care Act (ACA) for individuals with investment income (interest, dividends, cap gains, rental income, non-qualified annuities, etc.) whose total modified adjusted gross income from all sources exceeds:

-Single (Over $200,000 Modified AGI)
-MFJ (Over $250,000 Modified AGI)
-MFS (Over $125,000 Modified AGI)
-HOH (Over $200,000 Modified AGI)






Repealed









Alternative Minimum Tax (AMT)

Alternative method of calculating a taxpayer’s liability. Individuals owe the higher of regular tax or AMT with each year’s return. Under AMT rules, certain income, deductions (both the standard and certain itemized), exemptions, and credits are disallowed or added back to the regular tax calculation. Taxpayers are allowed an AMT exemption which functions as a deduction against AMT income to determine whether AMT tax is due. The exemption amounts are:

-Single ($53,900)
-MFJ ($83,800)
-MFS ($41,900)
-HOH ($53,900)
The AMT brackets/rates are:
26% ($0 – 186,300 of AMTI)
28% (186,300 + of AMTI)

AMTI = Alternative Min. Taxable Inc.











Repealed

Standard Deductions

Single - $6,300
MFJ - $12,600
HOH - $9,300

                       

Single - $15,000
MFJ - $30,000
HOH - Filing Eliminated

Itemized Deductions

Deductions allowed for:
-Medical Expenses
-Taxes (income, real estate, pers. prop.)
-Interest (mortgage and investment)
-Charitable Contributions (cash and non)
-Casualty and Theft Losses
-Other Miscellaneous Deductions i.e. unreimbursed job expenses, tax return preparation fees, legal fees related to tax matters, investment advisory fees, etc.

Certain deductions listed above are subject to their own limitations on deductibility. There’s no limitation per se on total itemized deductions allowed for the year. However, the itemized deductions lose value once a taxpayer’s gross income has reached a certain threshold by way of a phase-out. For 2016, those income thresholds are as follows:
-Single ($259,400)
-MFJ ($311,300)
-HOH ($285,350)









No indication of major change to the types of itemized deductions allowed against income, however, itemized deductions in total will be capped at the following limits:
-Single ($100,000)
-MFJ ($200,000)
-HOH (Filing Status Eliminated)
Personal Exemptions

Personal exemption amount is $4,050 per taxpayer/dependent. The personal exemption is netted against income after deductions and before tax is computed.

The personal exemption starts to phase out when a taxpayer’s gross income reaches a certain threshold. And it is completely phased out at the top end of the threshold. For 2016, those amounts are as follows:
-Single ($259,400 - 381,900)
-MFJ ($311,300 – 433,800)
-HOH ($285,350 – 407,850)









Repealed
Filing Statuses

-Single
-Head of Household (HOH)
-Married Filing Separate (MFS)
-Married Filing Joint (MFJ)
-Qualifying Widower


-Single
-Married Filing Separate (MFS)
-Married Filing Joint (MFJ)
-Qualifying Widower


                                                                                   


Items to consider for your 2016-2017 individual income tax planning:
  • Deferring income beyond 12/31/2016 in order to take advantage of potentially lower income tax rates, including potential repeal of AMT and the 3.8% Net Investment Income Tax
    • Commissions or other bonuses through employer
    • Fees billed as a self-employed independent contractor
    • Capital gains on sale of stock or other property
    • Distributions from retirement plans and other tax-deferred plans * (401K, IRA, annuity)
      • Note: taxpayers are required to take minimum distributions annually starting on or before April 1st of the year following the year the taxpayer turned 70 ½. For this purpose, deferring the initial required distribution from 12/31/16 to 4/1/17 may make sense. Excess distributions above the minimum may be deferred.
    • Conversions of Traditional IRA’s to Roth IRA’s (defers tax on conversion income) 
  • Accelerating deductions before 12/31/2016 in order to take advantage of potentially higher rates in the current year, giving more value to these itemized deductions.
    • Additional year-end charitable contributions (cash, stock, used items, etc.)
    • Contact medical/dental/pharmaceutical providers for payment of any outstanding items
      • Note: taxpayers will want to consider the 10% adjusted gross income threshold
    • Send in 4th quarter state estimated tax payments early (actual due date 1/15/17)
      • Note: taxpayers will want to consider AMT implications in doing so
    • Pay real estate and personal property tax bills timely
    • Pre-pay January 2017 monthly mortgage for additional interest deduction 

While we cannot say for certain if tax reform will take place, most advisors agree it’s more a question of when? In that light, if you have any questions regarding potential individual tax reform, or if you’re concerned about your own situation, please contact us. We would be happy to discuss.         

 
IMPORTANT TAX DATES TO REMEMBER

 
We want to remind you of important tax due dates and deadlines that are just around the corner. In addition to these dates please keep in mind that information provided to our firm for 1040 preparation on or after March 24th will receive an extension.

Here is a recap of important dates to keep in mind as 2017 progresses:
           

  • January 17, 2017 - 2016 4th quarter estimate payment
  • January 31, 2017 - All information forms (W2/1099) are due to recipients and must be filed with the government
  • March 15, 2017 - Form 1065 and 1120-S
  • April 18, 2017 - Form 1040, 1041, and 1120, unless extended
  • April 18, 2017 - 2017 1st quarter estimate payment
  • June 15, 2017 - 2017 2nd quarter estimate payment
  • September 15, 2017 - 2017 3rd quarter estimate payment
  • September 15, 2017 - Form 1120, 1120-S and 1065, if extended
  • September 30, 2017 - Form 1041, if extended
  • October 16, 2017 - Form 1040, if extended
  • January 16, 2018 - 2017 4th quarter estimate payment 
                 
                                 
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Becker and Rosen CPAs, LLC Disclaimer

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions. 

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