D3 Financial: 2017 Tax Reform – What’s Being Considered

Oct 27, 2017

Major tax changes are being proposed to the Internal Revenue Code by the Administration and Congress. The changes have been announced as a part of a suggested “framework.” The framework details are to be worked out and negotiated before being made law.  If the current items being discussed are adopted and made IRS regulations, it would be the biggest change in taxes since the Reagan era. The goal of the framework is to simplify taxes and streamline the tax code. These changes could have a significant impact on D3 clients, and whether that impact is positive or negative depends on your family situation, income sources, and your current deductions. Here is a highlight of some of the proposed changes in the framework:

  • Tax rates: The current seven brackets (starting at 10% and going up to 39.6%) will be consolidated into three brackets of 12%, 25% and 35%. These lower rates could benefit many D3 clients, however, it has yet to be determined the income level at which each bracket will take effect.
  • Alternative Minimum Tax (AMT): The AMT, which is a separate tax system, would be eliminated, simplifying taxes for those who were subject to AMT. The elimination of the AMT would benefit many D3 clients.
  • Pass-Through Entities: The top rate on the net income from pass-through entities would be 25%. Depending on income sources, this would help several D3 clients.
  • Itemized Deductions: Several itemized deductions are to be eliminated. Those eliminated include state and local taxes, real estate/property taxes, miscellaneous deductions, and medical expenses. Losing these deductions would generally negatively affect D3 clients, given that most itemize their deductions. The new framework would keep itemized deductions for charitable contributions and mortgage interest.
  • Personal Exemptions: Personal exemptions would be eliminated. Again, this would be unfavorable to D3 clients.
  • Standard Deduction: The standard deduction would be increased to $12,000 for single filers and to $24,000 for those filing a joint return. While the increased standard deduction is positive, in many cases it will not make up for the loss of itemized deductions and personal exemption(s).
  • Estate tax: The federal estate tax would be eliminated, signaling the death of the “death tax.”

As with anything being proposed in Washington DC, the framework is subject to horse-trading, lobbying, tweets, and constituency pressures. We will continue to monitor the 2017 proposed changes and how to use them to best improve your tax situation.

Read more from D3 Financial Counselors, here.

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