With tax policy shaping up to be a major issue in the 2016 presidential campaign, accountants and advisors working with wealthy taxpayers are analyzing proposals from the two major party candidate and considering tentative plans based on results of the election. Here’s a quick look at Donald Trump’s tax plans and a look at how his plan would affect wealthy clients.
Donald Trump has proposed reducing marginal tax rates at all income levels. The largest benefits will go to the highest-income households, who would realize an average tax cut of over 14% of after-tax income. Middle-income households would receive an average tax cut of 1.8% of after-tax income, and the poorest families would see their taxes go down by just 0.8% of after-tax income.
Reduction of Federal Revenue
The Tax Policy Center estimates that Trump’s plan would reduce federal revenues by approximately $6.2 trillion over the next decade and three-fourths of that revenue loss would come from reductions in business taxes.
Simplified Tax Code
Trump has promised simplification of the tax code if he is elected, increasing the standard deduction, repealing personal exemptions and capping itemized deductions. He’s also pledged to eliminate the alternative minimum tax (AMT) and the NIIT.
Changes to Estate & Gift Taxes
Long-term capital gains would still be taxed under the preferred rate structure. Estate and gift taxes would be eliminated, but capital gains above a larger exemption amount would be taxed at death.
Accountants and advisors who work with high-income individuals face a lot of uncertainty when it comes to helping their clients plan for tax changes after the election. Adding to the uncertainty is the fact that either candidate will have to work with a potentially narrowly divided House and Senate, so major tax reform could be an uphill battle for either party.
The Impact on the Wealthy
The wealthiest clients will likely welcome Trump’s proposed tax changes, as it would lower their tax burden.
Whatever the outcome of the election, it’s impossible to know what changes will actually get through and when they will go into effect. Uncertainty always makes planning for tax time a challenge, but with two candidates with diametrically opposed tax proposals, this election makes tax planning even more difficult – and the stakes higher.
Here’s a look at Clinton’s tax plan.