On November 2nd, Congress unveiled its latest proposal for the sweeping tax code reform that President Trump promised during his campaign. This plan is far from a finished product and has not made it to budget analysts or to the Senate. However, the GOP in the House and the Senate seem motivated to prove that they can pass major legislation, making some sort of tax reform a distinct possibility.
The new plan proposes that: (1) there will be four tax brackets; (2) state and local income and sales tax deductions will be eliminated; (3) the property tax deduction will be capped at $10,000; (4) the corporate tax rate shall be permanently lowered from 35% down to 20%; (5) the child tax credit shall increase from $1000 to $1600; and (6) the standard deduction should double. If these proposals become reality, they could have major and far-reaching implications for individuals and businesses in how they spend, save, and invest their money, for how people plan for their retirement, and how they estate plan.
Under rumored tax plans, Congress was going to severely limit the amount that taxpayers could contribute to their 401(k) retirement accounts. In fact, there were proposals to cut the annual contribution limit to $2,400, which represents a massive reduction from the current $18,000 contribution limit. The impact of this would have severely undercut the ability of hard-working Americans to put money aside for retirement while reducing their taxable income in the process. In response to intense negative response to this proposal, the latest Congressional plan does not touch 401(k)’s.
Abolishing the Estate Tax
For purposes of estate planning, individuals with wealth have long made plans for their property in order to avoid having to pay hefty estate taxes. For 2015, the estate tax exemption was $5.43 million while it increased to $5.45 million in 2016. This meant an estate whose value exceeded that threshold would have to file an estate tax return and pay taxes on the value above the threshold. As a result, wealthy taxpayers have had to put their property into some combination of trusts, gifts, and charity to ensure that the fruits of their lives’ work are not subjected to massive taxation.
The new proposal would double the exemption threshold, with the intention of eliminating estate taxes entirely within the next six years. The impact of this elimination would have a significant impact on how people estate plan, and would also force many people to reexamine their current plans.
You Need an Attorney
When there are major changes in tax laws, it is wise to revisit your estate plan. Because laws are fluid, you should choose an estate planning attorney with a background in taxation, who remains current with the status of the law. Call the Law Offices of Robert S. Thomas. I have over twenty years of experience in estate planning and taxation and can help you navigate the law with your goals in mind. Contact our office today at 847-392-5893 to schedule an appointment or visit our website today.