7 Things Every Professional Fiduciary Needs to Know About the Trump Tax Plan

by Paul Hynes, CFP® and Beth Misak

Although it’s early in the law-making process, fiduciaries may want to keep abreast of seven items that could be impacted by possible tax reforms being debated in Washington within the proposed Trump Tax Plan. The actual changes, if any, won’t be known for some time. This is general information and should not be construed as tax or legal advice.

  1. Increase the standard deduction from $12,700 to $24,000 for joint filers, and from $6,350 to $12,000 for individual filers. This effectively eliminates income taxes on the first $24,000 of income earned by a married couple and $12,000 earned by an individual.
  2. Reduce the current seven tax brackets (ranging from 10% to 39.6%) to three tax brackets of 12%, 25% and 35%. There’s nothing in the proposal about tax brackets for trusts. We’ll have to wait on that.
  3. Personal exemptions (currently $4,050 per person) would be eliminated. The exemptions would be replaced by an enhanced child tax credit and a credit for non-child dependents. The phase out levels for these credits would be increased to offer more tax relief to the middle income earners.
  4. Eliminate nearly all itemized deductions except for mortgage interest and charitable contributions. This includes elimination of the state income tax deduction, property tax deduction and medical expense deduction. For California residents, the loss of the state income tax and property tax deduction hurts. And, the loss of medical expense deduction could make a meaningful difference for tax payers who need a lot of medical care. But, the increase in the standard deduction will benefit many tax payers, especially those who don’t own homes.
  5. Eliminate the Alternative Minimum Tax (AMT). The AMT requires all tax payers to compute their taxes twice. Eliminating the AMT will simplify tax filing and as a result should decrease the cost of preparing an income tax return.
  6. Eliminate the estate tax and the generation-skipping transfer tax. Removing these taxes could change the current step-up of cost basis on death to a carry-over of basis to the heirs. Another consequence could be in the design and purpose of certain trusts away from tax avoidance toward other objectives.
  7. Allow income from sole proprietorships, partnerships and S-Corporations to be taxed at a maximum of 25%. Currently these entities are taxed at ordinary individual income tax rates which can be as high as 39.6%. This could be beneficial to Professional Fiduciaries as well as other businesses.

Who wins and who loses remains to be seen. In a recent interview with CNBC, one observer, Scott Hodge, president of the non-partisan tax policy research Tax Foundation said, “Even when you reduce the deductions that we get, and lower rates, the combination of these things will make most people much better off.”

We’ll keep you updated as the process continues. As independent financial advisors, our goal is to support you in making informed and sound investment policy decisions.

This article is based on the “Unified Framework” , the tax reform template Congress is working from and which was released on September 27, 2017 by the White House Press Secretary, as well as the professional input of Dean Gilger, CPA, of Applied Tax Resource Group in San Diego.

Paul Hynes, CFP®, and Beth Misak are advisors with HearthStone | Private Wealth Management in San Diego. Hearthstone is an avid supporter of PFAC and proponent of educating and empowering professional fiduciaries to make informed decisions.

The information and views on this page are not necessarily those of the author and not those of PFAC.