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How Will New Political Leadership Affect Taxes?

How Will New Political Leadership Affect Taxes?

Over the past 10 or 12 years, elected officials have successfully lobbied for reductions in the federal estate tax rate or increased limits for whom it applies. Though some argued for a total elimination of the tax, 2010 was the only time in recent years that clients did not have to pay any estate tax.

Currently, the federal estate tax rate stands at 40% for estates transferring over $5.45 million (for married couples). The chart below shows who paid estate tax in 2015:

It seems a near certainty that new leadership will also change income taxes. Proposals include:

  • Reducing the number of tax brackets;
  • Reducing the top marginal rate; and
  • Limiting the available deductions to offset the cost of lowering marginal rates.

Most plans also include repealing or significantly amending the 3.8% Medicare surtax on net investment income, since it is associated with the Affordable Care Act.

One new proposal would cap the value of Schedule A Itemized Deductions at $100,000 for single taxpayers and $200,000 for married couples, and include an expanded child care benefit, even if parents do not work or pay for child care. This change would have the most impact on taxpayers living in states with high state income taxes and/or real estate taxes.

Another proposal would set out to eliminate all deductions other than those for mortgage interest and charitable gifts. These items would not be capped at all.

Right now, capital gains tax rates stand at 0%, 15% and 20%.

  • One new proposal would tax capital gains, dividends and interest as ordinary income, but would exclude 50% of that income, making the effective rates 6%, 12.5% and 16.5%.
  • Another proposal would tax all capital gains and dividends as ordinary income, but would exclude 40% from taxation, creating a top effective rate of 21%.

One new proposal would reduce the top corporate tax rate from 35% to 15% and provide all pass-through entities (partnerships, LLCs and S corporations) with a 15% rate. It would also allow immediate expensing for certain business investments and a one-time repatriation of untaxed foreign earnings at a 10% rate.

Another proposal would reduce the top marginal corporate tax rate to 20%, with a maximum rate for partnerships and other pass-through entities of 25%. This one would also allow for immediate expensing of capital investments but would eliminate the deduction for business interest expense. It would include a one-time repatriation of untaxed foreign earnings at a rate of 8.75% for cash and 3.5% for non-cash profits.

With potential changes on the horizon, it makes sense to maintain flexibility in your clients’ financial plans. We may not know what the tax environment will look like in the coming years, but we can help clients work within existing rules and risks, keeping change in mind as we do.

It’s also important to remember that many strategies (and problems) in estate, business and retirement planning are not tax related. Here are a few areas that AXA can help you with, by providing products and advanced marketing approaches:

  • Family protection
  • Estate equalization
  • Portfolio diversification
  • Stabilizing wealth transfer using life insurance
  • Charitable giving
  • Business succession planning
  • Buy-sell planning
  • Retirement income supplement planning

Please be advised that this webpage is not intended as legal or tax advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and clients should seek advice based on their particular circumstances from an independent tax advisor. Neither AXA Equitable nor its affiliates provide legal or tax advice.


IU-121641 (01/2017)

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