Get ready for what may be the biggest changes to the tax code since the Reagan era.
For starters, President Trump's proposed tax changes cut the number of income tax rates from seven brackets to three: 12%, 25%, and 33%. He also wants to increase the standard deduction to $15,000 (from $6,300 for single filers) and to $30,000 for married couples filing jointly (from $12,600).
CNBC.com’s recent post, “How Trump's proposals may affect every income tax bracket,” explains that for many middle-income taxpayers, the new standard deduction under Trump's proposal may exceed their itemized deductions, giving them a higher deduction. Trump's plan also calls for the repeal of the alternative minimum tax (AMT) as well as the estate tax (“death tax”). If the AMT is eliminated, itemized deductions would be worth more.
And if the estate tax is repealed, any amount of wealth could be transferred without “death tax” to the estate. Currently, a taxpayer can pass up to $5.49 million to his or her heirs estate tax free, and for married couples, it is $10.98 million. Anything above that amount is taxed at approximately 40%. In 15 states and D.C., there’s also a State estate tax, but not in California.
In 2015, only about 10,800 estate tax returns were filed, and only half were taxable. As a result, the federal government collected $18 billion, according to the Urban-Brookings Tax Policy Center estimates.
The president’s tax plan also limits itemized deductions at $100,000 for single filers and $200,000 for married couples filing jointly.
Nothing is certain until it becomes law, but the general advice being given right now is to defer whatever realized gains can be deferred to the future, when tax brackets may be lowered.