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Taxes Under Trump: What the President's Tax Plan Means for the Wealthy

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On April 26th, the Trump Administration unveiled its outline of proposed changes to the current tax code.

While a formal proposal with comprehensive details is still to come, and the timing for implementation of a new tax code remains unclear, the outline raises several scenarios for which high-net-worth (HNW) individuals can begin to plan. How does this plan impact the financial lives of the wealthy - whether it passes into law or not? This paper will attempt to address these questions.

What is Included in Trump's Tax Plan?

To start, investors should review the Trump tax plan outline, noting pertinent elements to discuss with their advisors.

According to the Trump administration's 2017 Tax Reform for Economic Growth and American Jobs memorandum, as reported by CNBC, tax code changes would include:

  • Reducing the existing seven tax brackets to three: 10%, 25% and 35%
  • Doubling the standard deduction for single filers from $6,350 to approximately $12,700 and married couples filing jointly (MFJ) from $12,700 to approximately $25,800
  • Providing tax relief for families with child and dependent care expenses
  • Eliminating targeted individual tax breaks, except for mortgage/charitable gift tax deductions
  • Repealing the alternative minimum tax (AMT)
  • Repealing the death tax, also known as the estate tax
  • Repealing the 3.8% net investment income tax (Note: the American Health Care Act of 4 May 2017 has already repealed this tax)
  • Reducing the corporate tax rate to 15%

Potential Implications for the Wealthy - Enactment Scenario 

Should the proposed changes be passed into law, there could be several potential impacts on HNW individuals, including:

  • Fewer Itemized Deductions: While individuals may welcome lower base tax rates, they may also receive fewer itemized deductions, as the only itemized tax deductions pledged to be kept in the memorandum would be for charitable gifts and home ownership. This raises profound questions for commonly-taken itemized deductions now such as: state and local income/sales taxes, medical and dental expenses, investment interest, casualty or theft losses, and miscellaneous job and professional expenses, such as tax preparation fees
  • More Standard Deductions: With an income threshold double the previous amount, more HNW individuals, whether single or MFJ, would be able to take the standard deduction.
  • A Change in Calculating Deductions: With the repeal of the AMT, the initial conclusion appears that high-income investors could potentially increase their use of investment interest, bonus depreciation, stock options and other preference items for the calculation of the deductions that would have previously triggered the AMT. This said, many pundits are expecting that lower rates will signal fewer deductions, and wealthy individuals banking on being able to deduct current AMT addback items should probably prepare themselves for the reality that they may not be able to count on them as future deductions in the Trump tax universe.
  • The Illusion of Fewer Estate Freeze Strategies, but not the Reality: The prospect of estate tax repeal may make the wealthy feel they no longer need sophisticated estate plans. But the estate tax has been in force since 1916, and only in one year has it ever been 0%. (Even in this year, 2010, those faced with this tax had to choose between a traditional estate tax and a capital gains tax.) Knowing this should give those who are sanguine about the estate tax's demise some pause. HNW investors may feel less incentivized to use tried-and-true strategies, like grantor-retained annuity trusts and other estate freezing strategies, but it is doubtful whether they should be less incentivized to do so. Estate planning appears here to stay for awhile longer.

Potential Implications for the Wealthy - Non-Enactment Scenario 

Wealthy investors should keep in mind the possibility that tax reform will not pass into law in 2017. If the current tax code remains, there are a few common themes that investors can discuss with advisors:

  • Estate Planning: Investors should continue to incorporate flexibility in their estate plans - namely, the possibility that transfer taxes will continue to exist. Those with taxable estates above the current $5.49 million exemption ($10.98 million for married couples filing jointly) will still need annual exclusion strategies, life insurance and asset protection trusts and other estate freeze techniques.
  • Corporate Taxes: Business owners and advisors can continue to explore innovative strategies that reduce corporate tax burdens. Those could include domestic international sales corporations for companies with international sales, captive insurance companies, Section 1031 exchanges, sale-leasebacks and other tax-advantaged strategies.
  • Investments: Investors should consult their advisors on strategic —rather than purely tax-driven —portfolio changes. With no tax code changes, municipals will remain the vehicle of choice for those who want to minimize taxable income. Qualified dividends from stocks will remain attractive to investors trying to keep their taxable investment income at a manageable level. REITs and other instruments with nonqualified dividends may need to continue to offer higher nominal yields to compete for investment dollars.


It is also possible that a "middle-of-the-road" tax reform option will be proposed—one with certain elements of Trump's tax plan included and others excluded. But irrespective of whether tax code changes are implemented this year or not, those who would be wise as well as wealthy will work with their advisors now to create plans that are as flexible and tax policy-agnostic as possible. Careful and thoughtful planning, rather than the agenda of a political party, remains the primary strategy for protecting wealth in the long term - for families, for businesses, and for the yet unmet generations depending on the wealth they create and need to protect.


Joel Redmond, Senior Financial Planner

Joel Redmond is responsible for providing financial advice and direction to Key Private Bank clients with a focus on asset protection, tax reduction, asset distribution, and budget and expense management strategies.

Joel earned a BA in English from Binghamton University. An adjunct professor of finance at Syracuse University, he is also a section lead in the school’s online MBA program. He is also a CFP Board ambassador who routinely speaks to national media on finance, as well as the author of “The One-Minute Financial Planner.” 

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