Looking at what may happen in 2017 and beyond.
We recently looked at the 2016 election result and what it could mean to retirement savers, healthcare, and fiduciary protection. Now, without getting too far into the weeds of the Trump tax plan, let’s take a look at some strategies you may want to consider if you’re banking on President Trump following through on what candidate Trump promised. (And keep in mind, most Presidents try very hard to do what they promised to do during the campaign.)
Although we always include this caveat, it’s particularly important this time: This is not meant as tax advice and should not be construed as such. This article is for informational purposes only. The future is always unpredictable, and given this particular candidate, nothing is etched in stone. But, if we were to imagine what the tax changes might be, the below moves might be advantageous.
Accelerate Income Tax Deductions
Republicans, in general, believe that lowering taxes and decreasing government spending is good for the economy. While President-elect Trump is far from a traditional Republican, he is considering a reduction in the top marginal income tax rate to 33% (from just under 40% today). Most dentists aren’t necessarily in the top income bracket ($415,050 and higher for single filers), but they certainly can be based on specialty and combined with a spouse’s income; the highest bracket for married filers starts at $466,950. Trump also has plans to consolidate the marginal tax brackets into 3 from the current 7.
So why take deductions now? Because if you pay a lower tax rate in 2017, those deductions will have a higher relative value under 2016 tax rules. Under similar reasoning, you should consider selling depreciated stock in 2016 to offset any capital gains you may have. This is what’s known as “harvesting losses.” It can be a little complicated, though, so if you’re not familiar with the concept, talk to your financial planner or tax advisor.
Avoid Buying Capital Assets for the Remainder of 2016
Under current tax rules, tax deductions for a capital investment must be taken over a series of years instead of all at once. But the President-elect is among those who believe that allowing taxpayers to take the immediately for the entire asset in the year it is bought will spur economic growth. It is possible that this rule will change in your favor as a taxpayer in 2017.
This can be a big difference if, for example, you’re in the market for some pricey new dental equipment of furniture. Under the current tax laws, a depreciation tax deduction would have to be spread over 10 years. But next year, you may be able to take the entire depreciation deduction right away. The overall amount may be the same, but money in your account now is typically worth more than money in the future.
Postpone the Receipt of Income
If you can delay taking some income until 2017, you probably should. There is no guarantee that your income will be taxed at a lower rate next year, but there sure is the possibility.