Visitors to SeniorCareAdvice.com have been asking us if they should “do something” about their own or an elderly family member’s taxes in light of the recent Presidential election and the statements made by now President-elect, Donald Trump.
It is natural for people to want some advice in terms of how the election results will impact them — particularly when the results were dramatic and have led to what will be “one party” rule of Congress and the White House after the new President is sworn into office on January 20, 2017.
Our general answer is that it is too early to tell what actually will happen, and therefore too early to offer more than some general guidelines.
Changes to Laws Take Time, Sometimes a Very Long Time
First, while campaign promises often lead to changes in tax and other laws, promises made by candidates during the election campaign do not automatically take effect once the candidate is elected or even after the successful candidate is sworn in. Laws that are on the books remain on the books until they are changed.
Changing a law is often far harder than it might seem. Even when an incoming President and a majority of both the Senate and House will be members of the same political party — which will be the case after January 20, 2017 — there often are differences in approach, policy or procedure to work out. Even though everyone may agree with the objective, the devil is often in the details, and all politicians have their own particular issues that they try to get into new legislation, while those in leadership positions want to avoid unintended consequences.
To change any of the laws of the land would require a Bill to pass by majority vote in both the U.S. Senate and the U.S. House of Representatives. However, even before any votes are taken in the House or Senate, Congressional committees typically hold hearings to consider the proposed legislation. At the hearings, various amendments and revisions usually are proposed. For example, one Representative may want to cut tax rates across the board, while another may want to also eliminate any tax on the sale of a permanent residence, and yet another may want to hold rates steady on gambling winnings.
After the Committees in each branch of Congress approve their version of the Bill, both the House and Senate would have to agree upon and pass the same exact Bill containing the same provisions using the exact same language. Assuming the same Bill does pass both houses of Congress, the Bill does not take effect until and unless the President signs it into law (under most circumstances). Even then most new laws don’t apply retroactively to past years. Some new laws don’t even take effect until a future date, and many new laws don’t become operative until after new rules and regulations are promulgated — which sometimes can take a while.
Returns Filed Next Year for 2016 Not Likely Impacted
Further, nearly all new legislation operates prospectively. While President-elect Trump campaigned on a platform to reduce tax rates and eliminate the Federal Estate Tax, even if he is able to see those promises are enacted into law, it is highly unlikely that any new law will impact what you will owe on the Federal Income Tax return you’ll file in 2017 that covers calendar year 2016, or the Federal estate tax that would have to be paid on the estate of a person who passes away in 2016 or earlier. Further, changes in Federal tax law rarely impact the amount that has to be paid in terms of any state and local income taxes or state estate or inheritance taxes in those states having such taxes.
Accelerate Deductions — Defer Income
There are some general tax planning guidelines that accountants and financial planners give every year — accelerate deductions and defer income where possible. That advice may be doubly helpful this year.
For those who itemize income deductions, it is generally better to make charitable contributions this year rather than next, because if the tax rate is lower in 2017 the deduction will be worth less. If you are considering selling shares of stock, a business, a home, or other asset that has appreciated substantially in price, absent other changes in circumstance and all things being equal, it would usually be better to defer the sale from December to January 1st of the following year, and that would be especially true if tax rates decrease. Of course, no one can predict what the value of the stock, home, or other asset will be when the sale occurs.
We urge visitors to speak to their own accountants or financial advisers to get personal advice as to what, if anything, they might do in calendar 2016 in anticipation of 2017. While the future is unknown, getting advice from a knowledgeable and trusted professional is always a good idea.