The tax revamping proposed by the Trump Administration
certainly grabbed headlines. However, many who have been asking for meaningful
tax simplification might now be sorry that they asked. These proposals will be
a good example of “be careful what you ask for”, as many favorite deductions
and exclusions are slated to disappear. Who knows how this will ultimately
finish out, as the legislative process works through hammering out what
ultimately will be a final version. However, a prudent taxpayer can do a couple
things to help ease any anticipated pain.
Example: If the mortgage interest deduction might be limited
to only interest on $500k in debt, you probably don’t want to start house
hunting right now for that million dollar home unless you plan on putting down
at least 50%. The deduction for state income taxes and medical expenses is
proposed to go away. If you have discretion over when to pay these, you might
consider paying them in 2017 before a repeal takes effect. But maybe not,
depending on your individual tax situation. These things may do you no good in
2017 either.
Another example of
things you can do to change your tax profile is not getting divorced. Right now
the tax code actually encourages the opposite, as there is still a marriage
penalty built into the rate structure, and often times two single filers will
pay less tax than a married couple with the same incomes. In addition, Alimony
payments are fully deductible against gross income, making it easier to support
a former spouse. But that could be changing. With a contraction of the rate
brackets the marriage penalty could be reduced for many. And that payment to the
Ex? It’s proposed to be nondeductible, making it much more expensive for people
getting divorced in the future.
There are too many provisions that are on the cutting board
to go over them all here, but let it suffice to say that a projection of your 2017
tax situation before it is cast in stone is an important starting point. This will
enable you to make some decisions on how or if to respond to pending law
changes.