Day 213 of the Trump administration and still no tax reform. But with the President and his party having a clear majority, the intentions are there.

The time between changing tax laws can be confusing for both financial planners and clients who rely on understanding laws for efficient planning. Fortunately, as is true with most things, one need not know everything before being able to act on anything. Given present tax code and the stated intentions of both House and Senate Republican leaders, here is what we might see:

Personal Income Taxes
The personal tax code will remain progressive—since nothing has been otherwise proposed. Even with fewer than the current 7 tax brackets for ordinary income, there will still be multiple brackets with significant gaps between them; think 13%, 25%, and 39.6%. The size of gaps and thresholds for moving into a higher marginal tax bracket are still unknown. This has always been the key to pay now or pay later tax planning decisions. Fortunately, the ability to re-characterize will continue to allow for annual fine tuning.

Investment –Related Income
Favorable tax rates will remain for investment-related income like qualified dividends and long-term capital gains. Current long-term capital gains rates are 0%, 15%, and 20% and which one you pay depends on your current marginal tax bracket. For example, if your marginal rate is 15% or below, you will pay ZERO tax in long-term gains. If your marginal rate is 35% or less, you pay 15% long-term gains. If you are in the 39.6% marginal tax bracket, you will pay long-term capital gains of 20%.[1]

Social Security Benefits
There are no proposed changes to the formulas that determine how much, if any, social security benefits are taxable.

Standard Deduction
The standard deduction could get a lot bigger. This is good news for taxpayers who do not have many itemized deductions.  However, it also means many people will have to give more to charity in order to push their itemized deductions above the standard deduction. Current standard deductions are $6,350 for single filer, $12,700 for married filing jointly, and $9,350 for head of household.[2]

Affordable Care Act
Nothing new here. Your guess is as good as mine. Proceed, albeit with caution.


[2] 2017 Annual Planning Limits- College for Financial Planning

Points taken from original article by Jonathan Guyton, CFP / Journal of Financial Planning, August 2017, Vol 30, # 8
All written content on this site is for information purposes only. Opinions expressed herein are solely those of The Prudent Planner, LLC unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, tax advisor, accountant or legal counsel prior to implementation. Advisory services are offered through The Prudent Planner, LLC; an investment advisor firm domiciled in the State of Utah.

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