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Tax Law Changes To Look Out For In 2017

Since 1954, eight tax law reforms have been enacted, and six of those occurred in first or fifth year of a President's tenure. 2017 will be the first year of a new Administration in the White House, so it's useful to know what changes might be coming.

From both sides of the aisle, policymakers agree on three major goals:

Firstly, to encourage saving and investment in the U.S. instead of overseas. The current tax code discourages domestic investment, which is close to historic lows.

Secondly, to make tax laws simpler, so that time and money spent on planning and preparation could be concentrated on something other than taxes.

Lastly, to transform the IRS into a more customer-service oriented agency.

Although we don't know exactly what the next Presidential administration will do, both parties have published policy papers outlining the possibilities.

A Trump administration would simplify the tax code by reducing the number of tax brackets from the current total of seven to three — a 12%, 25% and 33% bracket.

This aligns with the House Republican plan.

The Republican-controlled House Ways and Means Committee proposed postcard tax filing for families, which would simplify the process.

The committee also proposed eliminating the "marriage penalty," the Alternative Minimum Tax, and all taxes on inheritances. However, the dependency exemption parents receive for each child would be eliminated.

Tax law changes would also impact businesses.

A Trump administration would reduce the income tax burden on businesses.

The changes would mean that businesses would be allowed to expense new business investments immediately instead of depreciating them.

Corporate Tax Rates would be reduced to 15%.

The administration would also offer businesses a one-time 10% repatriation tax for offshore corporate earnings.

A Clinton administration would add another bracket for the top-earners.

Top-earners would be hit by a 4% surcharge on adjusted gross income (AGI) of more than $5 million, and the Buffet Rule, which would impose a minimum effective tax rate of 30% on taxpayers with an AGI of more than $1 million.

A Clinton administration would also cap the tax benefit for deductions and exclusions at 28%.

Other possible changes include a new capital gains tax schedule that decreases rates as the holding period increases.

Additionally, a Clinton administration would increase the estate tax rate and decrease the estate tax exemption. This would mean returning the estate tax to 2009 levels, with a rate of 45% and the exemption level decreased to $3.5 million.

The main change for business under a Clinton administration would be to discourage multinational corporations from avoiding U.S. taxation.

Mr. Trump says his proposals would create 25 million new jobs and restore U.S. annual growth to 4%. According to the Trump campaign, this plan would reduce government revenue over the next decade by $4.4 trillion, although the Tax Policy Center have estimated this to be closer to $10 trillion. The Tax Policy Center has also said Mrs. Clinton's plan would add revenue of $1.1 trillion in the same period.

The key impact of the Democratic proposals would be to increase tax for the most wealthy Americans, whilst the Republican policy would be to cut taxes across the board.

Both candidates agree on a number of proposals that would encourage greater investment in the U.S. economy.

We'll keep you apprised of proposed tax reforms from both sides for financial planning purposes.