Trump’s Tax Proposals and Investment Decisions

  • May 3, 2017

    Tax-Reform-PinWhat should investors do in response to the recent release of information provided by the White House outlining proposed tax reforms? Absolutely nothing. The reasons are: (1) the information released contained very little that had not been previously proposed, and (2) the process of working out the details and obtaining Congressional approval has a long and uncertain future.

    In the summer of 2016 Trump released a more detailed description of his plan to reform income taxes if elected. The outline released in late April was vague and had only one large change from the previous plan: the highest proposed individual tax rate was raised from 25% to 35%. Perhaps this signals Trump’s willingness to pursue more modest reform. Who knows what details will emerge (such as the income brackets) or what will change in the months ahead. So investors should wait and see rather than make large portfolio changes.

    There are a few major things that could affect taxation of investment decisions if approved:

    • Margin interest may no longer be deductible.
    • Lower corporate income taxes could push stock prices even higher.
    • Elimination of the current deduction of state and local income taxes could harm the after-tax income of taxable bonds and enhance the relative attractiveness of municipal bonds.

    In some cases individuals could experience larger tax bills if approved:

    • Loss of deductions other than mortgage interest and charitable gifts,
    • Possible loss of stepped up bases on appreciated investments at death, and
    • Repeal of special tax breaks for high-income earners.

    On the other hand many investors could face reduced taxation if these changes are approved:

    • Repeal of the estate tax,
    • Doubling of the standard deductions,
    • Repeal of the 3.8% Obamacare tax,
    • Repeal of the alternative income tax,
    • Slightly reduced income tax brackets, and
    • Simplification of the brackets (permitting better planning)

    But all of this is speculation given that the plan is likely to be substantially modified or even rejected completely. Almost all investors should take the following view: keep an eye on the overall direction and likelihood of major tax reform, and do not do anything rash before final approval unless you are in a very unique situation such as potentially having extremely high earned income or huge realized capital gains this year.

    Most of the time, we would say, “Call us to discuss how we can position your portfolio and tax situation to take advantage of the changes”. But, unfortunately we have to wait until we get better direction and details on how the tax bill will look like before we can help our clients make any educated decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>



1256 contracts, 2010, 401K, adp report, Advisors, Alexandra Twin, alternative investments, annuity, asset allocation, asset classes, asset management, Associated Press, away, banks, Barrons Top 100, BCA, BCA. Biltmore Capital, Ben Bernanke, Best Week, bias, Biltmore, Biltmore Capital, Biltmore Capital Advisors, bond market, Brand, Brand Recognition, Business, Call, CFP Princeton, changes in market price, Chief Investment Officer, closed end funds, CNBC, CNBC Halftime Report, CNN, CNN Money, CNNMoney,, collar stock, college grads, Consumer Confidence Report, correlations, Covered, Covered Call Options, credit ratings, customized investment strategies, Dean, donald chambers, Dow Jones, dr don chambers, drop, Early, easy trading, economic policy, economy, Edge, efficiency, election, end, equilibrium, equity trading, etf, etf trading, ETFs, euro, Europe, Europe debt, European debt crisis, family office approach, federal income tax, federal investment income tax, Financial, financial advisor, financial crises, financial distress, financial management, financial security, financial strategies, Ford, Fox, Fox Business, fund manager, futures contracts, Gains, General Motors, Global, global market, Global stocks, groupon, halftime report, Herbert Lash, high income tax, home country, Home Sales, housing market, IDEAS, income tax, income taxes, initial public offering, Instant View, investment bias, investment income, investment returns, investment risk, investment strategies, Investors, IPOs, IRA, Jilian Mincer, Jonathan Cheng, KANA INAGAKI, key, large losses, long risk exposure, Los Angeles Times, make money, making investment money, making money last, Manufacture, Manufacturing, Market, market news, market price, market volatility, Markets, marketwatch, MICHELE MAATOUK, Mike Miliard, Molly Vernon, money, Money Manager, money managers, money strategy, municipal bond interest, municipal bonds, nassau club, New Jersey Advisors, New York Times, NJ, NJ advisors, NJ financial advisors, NJ money manager, NJ wealth advisor, NJ Wealth Advisors, obamacare, oil slide, Options, options strategies, Outlook, outperformance, Pending, personal financial services, personal risk analysis, Play, portfolio manager, Potfolio Manager, Princeton, Princeton Advisors, Princeton asset management, princeton financial advisors, Princeton Money Managers, Princeton wealth advisor, private wealth management, rally, recession, Recognition, registered investment advisor, Registered Investment Advisory Firm, retirement, retirement strategy, return, returns, Reuters, reward, RIA, RIA Princeton, Risk, risk exposure, riskier, rmd, Roth IRA, safer, saving taxes, savings, SEC-registered, Seeking Alpha, short risk exposure, Shudder, signals, skype, social security, social security benefits rules, star ledger, state income tax, Stephen Bernard, Stock, stock market, stock market returns, stock market winners, stock option strategies, stock price, stock prices, stock research, stock strategy, Stock Volatility, Stocks, structured notes, Stuart Day School, swine flu, tail risk, Tax Advantaged Investments, tax free investments, tax savings, tax strategy, taxes, taxes for social security, taxes on investment income, The Dean, The Wall Street Journal, Thomson, Thomson Reuters, Tick, Tim Ralph, Timothy Ralph, Today, Tony Roth, Trading, tricks, Tyler, tyler vernon, U.S., U.S. dollar gains, U.S. Stock, unemployment, USA, USA Today, VIX, volatility, Wall Street, wealth management, wealth manager, wells fargo, world market, worth, Yahoo, Yahoo Financial,