No matter who you voted for in the 2016 election and regardless of your political views, one thing we can all agree on is that a pro-economy plan is good for everyone. The more money individuals have available to invest, the more activity we’ll see in the stock market. The more money business owners have, the more jobs they can create. And the more jobs in the pipeline, the more opportunities and advancements in our communities.
For high-net-worth retirees, President Trump’s tax proposal points to a reduction in taxes in several key areas, benefitting this demographic in the short and long term.
Reduction In The Effective Tax Rate
President Trump’s tax proposal aims to reduce the effective tax rate for U.S. taxpayers and condense the number of tax brackets from seven to three. A reduction in the effective tax rate will significantly benefit those who are currently taxed at the highest bracket of 39.6 percent. If the proposal passes, the top tax rate for high-net-worth retirees will drop to 33 percent.
Business Income Taxed At 15 Percent
Some high-net-worth retires may have business income that is earned through a pass-through entity such as a partnership or single member LLC. This income is not taxed at the entity level; rather it is taxed at the owner’s individual tax rate. Under Trump’s proposed tax plan, business income from pass-through entities will be taxed at a 15 percent rate rather than at the owner’s individual tax rate. Many business owners’ individual tax rate is at the highest tax rate. Under Trump’s proposed tax plan, business owners could see significant tax savings.
Eliminating The Capital Gains Surcharge
The net investment income surcharge of 3.8 percent, which is a tax on income from investments, helps to fund the Affordable Care Act. High-net-worth retirees often have investment portfolios, so they are a large contributor. Under Trump’s proposal, this surcharge would be eliminated, thus resulting in a tax cut.
Eliminating The Estate Tax
If Trump’s tax proposal passes, we will see an end to the traditional estate tax. Under Trump’s proposed plan, heirs will no longer receive a stepped-up basis in the assets they inherit. Instead they will receive a transferred basis, which will likely result in a capital again on the sale of the asset.