Tax Reform Likely in 2017? Strategies You Should Consider for Year-end Tax Planning

Tax reform will likely be a priority for President-elect Donald Trump and the Republican-controlled Congress in 2017 by consolidating the individual tax rates into three brackets, eliminating the 3.8% surtax on upper-earners, and potentially reducing the tax-savings impact of current deductions. With all this in mind, here are some important strategies for taxpayers to consider this year.

Paul Simons December 5, 2016

As the election is now in the rear-view mirror and you begin to think about year-end tax planning options, consider that tax reform is likely to be a priority for President-elect Donald Trump and the Republican-controlled Congress.

Based on preliminary policy positions from the campaign and reports in the media, we may see tax reform to produce lower tax rates coupled with a broader tax base. It has also been reported that there will be fewer deductions and credits. Trump wants to consolidate the individual tax rates into three brackets: 12%, 25% and 33%. On capital gains and other investment income, he has campaigned on eliminating the 3.8% surtax on upper-earners. With all this in mind, here are some important tax-saving strategies to consider this year:

Defer Income to 2017 and Accelerate Deductions in 2016
Deferring income is a common tax reduction strategy in a normal year and may be especially important this year. If you have the ability to delay a dividend from a privately-held business or postpone a bonus to 2017, you may also benefit from potentially lower tax rates next year. Similarly, you may want to accelerate any write-offs you can into 2016 for two reasons: (1) deductions have more value when tax rates are higher, and (2) many tax breaks we have now may be reduced or eliminated altogether. The House GOP tax plan seeks to eliminate deductions for medical expenses, state and local income taxes, realty taxes, employee business expenses, and others.
Put off Property Sales to Avoid the 3.8% Medicare Surtax
For taxpayers with an Adjusted Gross Income (AGI) over $200,000 for individuals or $250,000 for couples filing a joint return, delaying the sale of property could reduce your net investment income in 2016. Trump has vowed to repeal this tax, which was enacted as part of the Affordable Care Act. If you do sell your property, you might consider spreading out your gain using an installment sale.
Consider Increasing Your Charitable Giving in 2016

For some wealthy families or high net worth individuals, it may make sense to increase charitable giving plans in 2016. Trump’s proposed reforms may lessen future tax-savings incentives by capping the total amount of itemized deductions allowable. If you have future charitable donation pledges or commitments, you might consider front-loading some donations for the next several years by making larger gifts before Dec. 31.

For example, if you typically make donations of $10,000 per year, you could decide to front-load your giving by making a larger donation in 2016 of $40,000. You would then be allowed to claim a $40,000 charitable donation for 2016. Talk with your financial advisor about giving programs or donor-advised funds.

Consult a Tax Pro

These are just some of the year-end tax-planning strategies to consider, based on educated guesses and policy statements from President-elect Trump’s campaign and House GOP proposals in years past. There is no certainty of tax reform or changes that will be implemented for 2017 and forward, however.

Before implementing any of these strategies, consult your tax advisor to discuss details and limitations, as well as other creative tax-saving alternatives. For more information, contact Paul Simons.