Wednesday, November 9, 2016

President-Elect Donald Trump Is Less Than Ideal for Tax Advisers?

On July 19, 2016 we posted Time to Compare Candidate's Tax Plans!  where we discussed both the Clinton Tax Plan and the Trump Tax Plan. Now with that the Donald is President-Elect, what does that mean for Tax Advisers?
 
Donald Trump has proposed tax reforms that would significantly reduce marginal tax rates for both individuals and businesses, increase standard deduction amounts to nearly four times current levels, limit or repeal some tax expenditures, repeal the individual and corporate alternative minimum taxes and the estate and gift taxes, and tax the profits of foreign subsidiaries of US companies in the year they are earned.

The main elements of the Trump proposal are:  
 
Individual Income Tax
  • Collapse the current seven tax brackets, which range from 10 to 39.6 percent, into three brackets of 10, 20, and 25 percent.
  • Increase the standard deduction to $25,000 for single filers and $50,000 for joint filers in 2015, indexed for inflation thereafter.
  • Leave personal exemptions unchanged at $4,000 per person in 2015, indexed. 
  • Tax dividends and capital gains at a maximum rate of 20 percent. 
  • Limit the tax value of itemized deductions (other than charitable contributions and mortgage interest) and exclusions for employer-provided health insurance and tax-exempt interest. 
  • Increase the phaseout rates for the personal exemption phaseout and the limit on itemized deductions. 
  • Repeal the alternative minimum tax. 
  • Tax carried interest as ordinary business income. 
  • Repeal the exclusion for investment income on life insurance contracts entered into after 2016.
Estate and Gift Taxes

  • Repeal federal estate and gift taxes.
Business Taxes 
  • Reduce the corporate tax rate to 15 percent.
  • Limit the top individual income tax rate on pass-through businesses such as partnerships to no more than 15 percent.
  • Repeal most tax breaks for businesses.
  • Repeal the corporate alternative minimum tax.
  • Impose up to a 10 percent deemed repatriation tax on the accumulated profits of foreign subsidiaries of US companies on the effective date of the proposal, payable over 10 years.
  • Tax future profits of foreign subsidiaries of US companies each year as the profits are earned.
Affordable Care Act Taxes
  • Repeal the 3.8 percent net investment income tax on high-income taxpayers (single filers with income over $200,000 and couples with income over $250,000, unindexed).
So Where Does That Leave Tax Advisers?
 
 
From my roughly 35 years of experience, Taxpayers generally value tax advice when the tax rate is above 50%.

When rates are between 25% – 50% the value of Tax Advice diminishes and the tax adviser has to produce more significant benefits in order to show value.

When the rates are between 15% – 25% you really have to question whether you need a tax adviser at all and certainly whether the cost of their tax advice significantly exceeds the value of the tax savings. 
  • For Businesses a tax rate of 15%, or roughly 20%  where you factor in state income taxes, it will be very difficult for tax advisers to provide sufficient tax benefits to justify their fees; especially for small companies and small enterprises... Not a plus for tax advisers here!
  • For Estate Planners, with the elimination of gift and estate taxes, who needs an estate planner, other than someone who needs testamentary documents and taxpayers can get them from LegalZoom... Definitely not a plus for tax advisers here!
  • For Individuals with the top tax rate decreasing from 43.4% (39.6 & 3.8 Obama care) to a maximum of 25% (Trump proposes to eliminate Obama care), this decrease essentially cuts the value of individual tax advice by roughly 45%. With an increase in the standard deduction to $25,000 for single filers and $50,000 for joint filers, most individual taxpayers we'll see their taxes decrease by roughly 50%, without the need to consult a tax advisor... Again not a plus for tax advisers here!
When you add to that a Trump proposed 10% repatriation tax on offshore deferred profits; not only who needs a tax advisor, but who needs to keep the profits offshore anymore? No tax advice needed here!

Now it's not all doom and gloom for Tax Advisers, as I have found them to be some of the smartest, most technical, most adaptable and opportunistic group of professionals and no matter how the tax law changes, they consistently somehow find a way to find an exception for their clients and thereby demonstrate their value to their clients. 

What do you think?
  
 Have a Tax Problem?
 
Contact the Tax Lawyers at
Marini & Associates, P.A.
 for a FREE Tax Consultation Contact US at 
or Toll Free at 888-8TaxAid (888 882-9243).
 
 

 

7 comments:

  1. Rep. Sander Levin, D-Mich., announced late Tuesday that he will not seek re-election as a ranking member on the powerful House Ways and Means Committee so that he can focus his efforts instead on preventing President-elect Donald Trump from scrapping Obamacare and making regressive trade and tax policy changes.

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  3. Probability of Estate Tax Repeal & Later. 1. Even if repealed, the estate tax will come back with a change of control in Congress. As a thought experiment, if the Democrats retake Congress after the 2020 census, then you can anticipate an immediate move to reinstate the estate tax. Given their positionon the issue, Democrats are likely to support a lower exemptionand higher rate than current law. 2.Do Republicans do not have the 60 votes for repeal in the Senate. If republicans have fewer than 60 votes, then estate tax repeal will have to be done using a procedure known as reconciliation – which imposes significant political, procedural, and policy challenges and restrictions. Not the least of which will be the sun-setting of repeal after the prescribed budget window (often ten years). 3. There has been a federal estate tax for 99 out of the last 100 years. 4. If the estate tax is repealed, that would mean less money to fund future infrastructure bills, President-Elect Trump, who had proposed between $800 billion to $1 trillion in additional infrastructure spending during the campaign. Ideas like offering bonds, levying a one-time repatriation tax, increasing tolls, etc. to pay for infrastructure spending all have their
    shortcomings. 5. If Republicans turned to other ideas to help fund infrastructure spending (e.g. – user pay
    concepts like raising the gas tax), while repealing the estate tax, President Elect-Trump’s blue
    collar support could evaporate quickly.

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  6. Our Estate Tax Counsel Robert Blumenfeld, Esq. reminded me that the potential Trump repeal of Estate Taxes could take the form of the 2001 President George W. Bush Estate Tax Repeal.

    Though Bush reduced the tax, he did not repeal it.

    Rather, under his 2001 tax cut package, estate tax were reduced every year and then after his presidential term of eight years, they were eliminated for just a single year in 2010, before reverting back to higher rates.

    So don't eliminate the possibility that Trump could get credit for eliminating estate taxes, just like President George W. Bush, but in reality he could just reduce estate taxes during his presidency and then schedule them for elimination at some future date (e.g. after 2024).

    It’s good to keep in mind this prior precedent where President-elect Trump could keep his campaign promises without immediately eliminating estate taxes starting in 2017.

    What do you think?

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  7. “There is no doubt that 2017 will be a milestone year for tax policy along the lines of 1986 and 1954,” said George Farrah, editorial director of tax and accounting at Bloomberg BNA. “Every area of tax is going to be impacted, not only by a tax overhaul but also by the likely repeal of Obamacare, potential elimination of some major tax regulations, and changes in evolving state tax laws and policies.”

    “These are monumental changes,” he said, noting that the federal area could see a rewrite of the entire Tax Code. “Some of the pieces of that which seem likely are changes in tax rates, the elimination of the corporate minimum tax, border adjustments, IRS restructuring, a move towards a territorial tax system, and repeal of the estate tax,” he said.

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