How President Trump’s Tax Plan May Affect Your Pocketbook
As the IRS starts rolling out its forms to taxpayers, there’s a lot of uncertainty and misinformation clouding big picture tax issues for both individuals and corporations.
A good advisory firm is proactive and thinking ahead on behalf of its clients. Good firms consider market realities rather than the high emotions that dominate the current political landscape. We try to help our clients think about their money in the same way and we are continually monitoring the potential changes to the tax system so that we understand how our clients will be impacted.
On today’s show, we try to sort out the facts from the what-ifs, and make some considered observations about what President Trump may mean for taxes. Which proposed reforms are most likely to become law? Will there be a compromise with the Democrats? And what should you be doing to prepare yourself and your money for the next four years?
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Insights On Trump and Taxes
Here are several observations related to what's happening in the tax area. These are not law yet but they may give you an idea of the direction taxes are heading.
1. Changes ARE coming.
We expect President Trump and Congress to reduce the number of tax brackets from seven to three:
- A 12% bracket for married couples filing jointly up to $75,000 in adjusted gross income.
- A 25% bracket that will go from $75,000 up to $225,000 in adjusted gross income.
- A 33% bracket for $225,000 and up.
For single filers, percentages may be exactly half. And for everyone, standard deductions are likely to go way up thanks to a simplified deduction process.
Rule changes also may be coming to certain types of investments, such as Roth IRAs, providing new challenges for investors but also new opportunities for those who plan ahead.
2. The end of double taxation for businesses.
Right now, the two layers of tax associated with corporate earnings add up to almost 50%. President Trump has proposed reducing that rate to 15 or 20%. Whatever the final number, any reduction would lead to more money for corporations to either pass through to shareholders, or to reinvest in their businesses and their workers. President Trump also expects that reducing the corporate tax burden will disincentivize businesses from parking their earnings in overseas bank accounts. That’s potentially $2.9 trillion -- with a T -- in untaxed income currently doing parked overseas that could be injected into the American economy.
3. Keep your confirmation bias away from your money.
These are turbulent times that have roused strong emotions in people, some good, some bad. It’s tempting to cling to your preconceived notions, and only seek out opinions that affirm what you already believe. That may be comforting, but your finances don’t need comforting. We have so much respect for our clients, and our listeners, because they are taking an active role in their financial futures, educating themselves, seeking out good information, listening to things they may not want to hear, and making the best, most rational plans. In a world dominated by hair-trigger reactions on social media, it’s easy to get swept up in a wave of emotion. But in the long run, the economy is bigger than one person, bigger even than the most powerful person in the world. Facts, a cool head, and sound planning will put you in a position to make the best possible decisions for your future.
Bill Keen on taxes...
I see some opportunity potentially with these higher standard deductions for some Roth conversions that may not have made sense in the past.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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