Thursday, September 28, 2017

Tax Reform "Framework"

     Following in the footsteps of the recently released estimates of the 2018 inflation adjusted exemptions for the Estate and Gift Taxes, yesterday the President unveiled what the White House refers to as a "framework" for tax reform. This framework contains a number of significant proposals, many of which are similar to ideas put forward during the President's campaign including:
  • reducing the number of individual income tax brackets from 7 to 3,
  • nearly doubling the current standard deduction,
  • increasing the child tax credit to an unspecified higher level, 
  • significantly reducing the corporate income tax rate, and
  • reducing the tax rate on income received from "pass-through" companies (such as LLC's, partnerships, and S-corps).
Also significant in the framework is a renewed effort to reduce individual and corporate tax deductions and repeal the Estate and Gift Tax.
     Economists, pundits, and reporters will have much to say about this effort to reform the tax code, but for our purposes it is important to remember that this framework is essentially a “wish list’ and not a well-defined bill Congress can discuss and pass. The framework omits significant details, including basic, but integral, information such as where the individual bracket thresholds start and stop. While this is clearly a statement of intent regarding how the administration would like to move forward on tax reform, the lack of specifics make it little more than a compilation of common Republican talking points on the subject of tax reform from the last 10 years.
     From our point of view, any discussion of tax reform is an important issue to stay abreast of in order to understand how it will impact our clients planning. The potential repeal of Estate and Gift Taxes reinforces this belief, as any change of that magnitude is likely to create a ripple effect reaching other aspects of the tax code, including whether inheritors receive a step up in basis and the rules regarding the distribution of inherited IRAs. That said, it is our philosophy to keep track of tax proposals but not to spend a significant amount of time gazing into our crystal ball to determine how proposed legislation that may never come to pass will affect our clients.
     Rest assured we will continue to stay abreast of tax proposals and their impact on the planning landscape so that if and when a tax reform proposal becomes law we will be prepared to provide our clients with the expertise necessary to adapt their planning to the changed landscape and ensure that it continues to achieve their goals moving forward.
Alan and Matt

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