Top 6 Ways President Trump Could Disrupt Your Tax Return.
If you want to know which pieces of now President Trump's Trump's tax policy will become law,just ask your Magic 8 Ball.
It's got just as good a shot as anyone else at getting it right, because as we all know, what's said on the election trail often is different than the post-inaugural reality. But now that Trump's inauguration has taken place and we start to confront which of his tax ideas will be implemented, it behooves us to consider what's ahead for us on that front.
And we may actually see tax reform this year: the GOP needs to prove that there really is strength in numbers and that the party actually can get something done, especially since the 2018 Congressional elections will come quickly and the balance of power may change.
In that vein, just look to the House Republican Tax Reform Plan, spearheaded by House Speaker Paul Ryan.
It's a good clue, mainly because it is revenue neutral, compared to Trump's. Although Ryan and his cronies created a plan based on the notion that the money saved in taxes will go back into the economy, we know that's often a crap shoot. (Just ask the Kansas Governor Sam Brownback how his tax cuts turned out.)
Still, "Ryan's plan is more thought-out and has the support of the Ways and Means Committee," notes Mark Luscombe, principal analyst at Wolters Kluwer, a tax and accounting services company. It also offers a 14-line tax return for many taxpayers.
So it's a good starting point as you're shaking your Magic 8 Ball.
Here's a little cheat sheet of what may affect your individual tax return - and what, if anything, you should do now about it.
1.Three Individual Rates
Both Trump and Ryan are proposing a three-rate system: 12%, 25% and 33%. And presuming there is tax reform, this probably will make it through.
What should you do now? If you are in a position to defer income, go for it, says Fred Slater, CPA partner at MS1040 LLC in Manhattan. It may very well be taxed at a lower rate if you can wait.
2. No More Alternative Minimum Tax
The AMT is a big revenue raiser so the deficit hawks will be circling. But getting rid of it is also a huge part of fundamental tax reform, and the political backing to abolish it is there.
What should you do? The happy dance if that actually goes away since so many people in the middle class get smacked by it.
3. Increased Standard Deduction
Ryan's plan gets rid of personal exemptions and all itemized deductions except for the mortgage interest deduction and the charitable contribution deduction. He suggests the standard deduction jump $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly and from $9,300 to $18,000 for heads of household.
Trump, on the other hand, would like to see the standard deduction at $30,000 for married couples and $15,000 for singles. Trump actually proposed getting rid of the head of household deduction.
What should you do? While Ryan's rates will probably survive, still consider moving some deductions forward - e.g. pay state and real estate taxes before the end of the year so you get the deduction in 2016, presuming you qualify. Some single parents and lower income tax payers might want to talk to an advisor, says Luscombe. Because getting rid of those exemptions could actually hurt.
4. Capital Gains - Basically, Ryan wants to get rid of that separate capital gains rate. Instead, he suggests including 50% of all capital gains and dividends as ordinary income. Then they will be taxed at the new ordinary income tax rates proposed above.
Trump's plan on capital gains is not so detailed,says Luscombe.So Ryan's may prevail.
What should you do? If you are planning on generating big capital gains or losses before the end of the year, it might be worth running the numbers under both rates.
5. Estate and Gift Tax
Both plans want to repeal estate tax at the federal level. Trump suggests the repeal of the gift tax as well.
As a refresher, for 2016, you can leave $5.45 million to your heirs without having to pay federal estate and gift tax. A married couple can leave $10.9 million and avoid the taxes. Amounts over that are taxed at 40%. While this seems like it is a rich person's problem, estate taxes are killer for small businesses and farmers.
Especially since taxes have already been paid on this money. So it's essentially a double tax.
What should you do? If you are making a gift to someone and will be have to pay a gift tax, think about waiting.The bigger unknown is will the states follow,says Slater.
That's a good question for your Magic-8.
6. Child Care Tax Credit Changes
Ryan's plan doesn't offer any changes though Ivanka Trump helped create a plan for her father.
What should you do? Go get married if you're a single parent,since her plan is much more beneficial to married people.
(Clearly kidding about the marriage part.)
