6 Proposed Tax Changes that Could Affect High-Net-Worth Individuals

With tax season officially here, many Americans are wondering how the new presidential administration will affect their tax bill going forward. While we don’t yet know which campaign promises will eventually become legislation, President Trump’s tax proposals could result in significant rate changes for many Americans.

Two of my colleagues who specialize in helping businesses and individuals with tax planning, David Merzel, CPA, CFE, EA, and Meredith Tucker, CPA, recently co-authored a blog post about the six proposed tax changes that are most applicable to high-net-worth taxpayers. The following is a summary of the proposed changes.

1. Reduction in top rates. Today’s federal income tax rates include seven brackets ranging from 10% at the lowest to 39.6% for the highest-earning Americans. Under the proposed changes, brackets would be reduced to three tiers, maxing out at a reduced rate of only 33% for incomes over $225,000. Long-term capital gains rates would be held at 20%.
2. Elimination of the Net Investment Income Tax. Americans earning over $250,000 were impacted by the 2013 implementation of the nation’s 3.8% surtax on investment income. This surtax would be eliminated under proposed tax changes.
3. Limitations on itemized deductions and increases to standard deductions. Under President Trump’s proposal, aggregate itemized deductions would be limited to a lump sum total of $200,000 for married/joint filers and $100,000 for single taxpayers. However, those utilizing the standard deduction would benefit with married/joint taxpayers receiving a bump to $30,000 in standard deductions, up from approximately $13,000.
4. Elimination of Alternative Minimum Tax. President Trump’s proposal would eliminate the Alternative Minimum Tax, a long-standing tax system that runs parallel to the regular tax system for wealthy taxpayers.
5. Increase in carried interest tax rates. Carried interest earned by those in the private equity world is currently taxed at a preferential 20% rate akin to long-term capital gains.  Under Trump’s proposed changes, this income would revert to higher, ordinary tax rates.
6. Changes to estate and gift taxes. The current system imposes a 40% tax on an estate to the extent it exceeds$5.45 million.  Trump has proposed the complete repeal of estate taxes; however, capital gains held until death and valued over $10 million would be taxed at a 20% rate.

Speak to a tax advisor to learn how these and other proposed tax changes could affect your tax situation.