Personal Finance

Friday, January 20, 2017

Tax Law Changes on the Horizon for 2017

Senior Estate Planner, Mike Repak, discusses the likelihood and potential impact of significant changes from the new presidential administration.





Most experts believe that once the new administration gets situated, it’s almost certain that significant tax law changes and rate reductions will be enacted into law. While the process still needs to unfold a bit more to gain a better sense of what the final product will be, both President-elect Trump and the House GOP (i.e., Paul Ryan) have revealed enough of their thinking to give a general idea of what may be in store for all of us next year.

Income tax rates. Perhaps the biggest item will be a reduction in the top corporate income tax rate, from 35% to possibly 20%. However, individual income taxes are likely to change significantly as well. Both Trump and Ryan are proposing to reduce the current individual income tax rate structure from the current 7 brackets—with the highest rate at 39.6%— to 3 brackets, with a maximum rate of 33%. The Trump plan and Ryan plan both include the elimination of the individual Alternative Minimum Tax system. And both seek to simplify taxes, by replacing many itemized deductions and personal exemptions with a significantly larger standard deduction. Trump’s plan expands the preferential tax treatment given to qualified dividends and capital gains to include some investment interest income. The Ryan plan, however, calls for a new approach: individuals would be able to exclude 50% of their investment income (including interest), before subjecting the remainder to ordinary income tax. Both plans provide for increasing the tax benefits that may be claimed by taxpayers for child care costs, and the Trump plan allows a similar tax benefit for elder care expenses as well.

Estate taxes. Both Trump and Ryan are proposing to eliminate Federal estate taxes. Trump’s proposal would replace the current system with a capital gains tax on a decedent’s estate at a top rate of 20%, applicable to estates over $10 million. This could cause some significant changes in how estate planning drives behavior. For example, while current law makes it more advantageous for taxpayers to hold low-basis, highly appreciated assets until death to get a basis step-up, a new system might create an incentive for people to either sell those assets (since the capital gains tax is unavoidable) or use those assets for gifting—so the next generation can determine when to sell, and thereby trigger the capital gains tax.

Are these changes likely? Of course, these tax reductions may represent a decrease in Federal revenues and an increase in the annual deficit. Considering that the Federal debt is approaching $20 trillion, it may be reasonable to expect some political opposition to these changes, even if they are intended to stimulate the economy. While the GOP will control the White House and both houses of Congress in 2017, the majority in the Senate is not large enough to be filibuster-proof. The estimated costs of these proposals vary greatly, depending on whether static scoring or dynamic scoring is used to determine the cost. In static scoring, the economy is assumed to remain constant, whereas with dynamic scoring the economy is assumed to grow. Naturally, the proponents of these changes will argue for dynamic scoring. The GOP may decide to attract some Democratic support to ensure passage in the Senate, or it may break the more objectionable changes into a separate bill that it would pass using “reconciliation”—which requires only a simple majority in the Senate.

Your advisor can help. Even though many details remain unsettled, and it’s still too early to tell when changes might become effective, we at Janney will be closely watching the legislative process unfold. Plan to discuss the impact of any new rules changes with your advisor. They can help determine what adjustments, if any, need to be made to retirement and estate plans – and also whether the new laws present opportunities to reconfigure retirement savings (e.g., Roth conversions) or take advantage of new investment arithmetic, for example, taxes on corporate bond interest.

Contact your Janney advisor for more information, and visit janney.com/taxes to read more about tax exemptions, deductions, and filing deadlines. Also consider seeking the assistance of a tax professional to determine what year-end tax planning moves, if any, are right for your individual circumstances.


Michael Repak
Vice President/Senior Estate Planner
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Mike provides advice and guidance in all aspects of financial, tax, and estate planning issues. He earned his Bachelor’s degree from William Paterson University in Wayne, New Jersey, and has a Master’s degree from the University of Wisconsin in Madison, Wisconsin. He has a CPA/PFS credential, and Series 7 and 66 securities licenses. He received his J.D. from the University of Florida and his LL.M. in Tax Law from NYU. 

He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants. Mr. Repak has served on several non-profit and civic boards, is a graduate of Leadership Philadelphia, and a member of the Union League of Philadelphia.


Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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