Changing Your Game with Trump Cards on the Table

We’re taught two “don’ts” – don’t talk politics and don’t throw stones. However, we have a new reality, and for many, Trump’s victory was a surprise. Client conversations involve the elephant in the room – “What changes should we make” or “We’re scared… are we going to be okay?”

Regardless of who won this highly contentious and nasty election cycle, half the country was going to be unhappy with election results. It’s an unfortunate reflection of our deeply divided country. Late night show hosts each had their unique delivery of emotions and hopes. Seth Meyers captured it whether you’re red or blue – “I felt a lot of emotions last night and into today. Some sadness, anger and fear. And I’m aware those are the same emotions a lot of Trump supporters felt… emotions that led them to make their choice. It would be wrong to assume my emotions are more authentic than theirs.”

We’ve heard acceptance, concession and transition speeches. Underlying all were the themes of working together for a brighter future. There’s lots of uncertainty on how the cards will be turned over. However, the man hasn’t yet taken office or his “first one hundred days.” Why not give him and the process a chance to work? And why not focus on things we can control? Let’s look at a couple areas in your financial plan for you to consider under the new administration and Congress.

Estate Tax Repeal?

The so-called “death tax” is unpopular as a double tax. The estate tax affects few Americans and accounts for less than 1%of the total annual Federal tax revenue. Nevertheless, repeal of the estate tax has been in the cross-hairs.

The prospects and impacts of repeal are uncertain. However, some insights by estate planning gurus Jonathan Blattmachr and Marty Shenkman are as follows:

  • Repeal could reform the focus of estate planning to family and asset protection, and income tax planning.
  • Permanent repeal is uncertain, and more likely we’ll see a ten year sunset provision (Byrd Rule) unless the Republicans can get sixty votes in the Senate.
  • Uncertainty suggests it may be premature to make substantial changes to existing estate plans. Better clarity may come in three to six months. Consult your estate counsel.

Income Tax Reform?

Trump campaigned on tax reduction ($6.2 trillion in a decade) and “simplification.” The tax code and regulations have expanded. They’re equivalent in volume to ten Harry Potters (entire series) or seven King James bibles. However, it’s uncertain what Congress approves (e.g. closing the budget deficit and reducing federal debt which has roughly doubled the past eight years) and how long those changes are effective. Tax policy changes over time and Congress giveth and taketh away.  For example, I started my career in 1980. The Economic Recovery Tax Act of 1981 (Regan tax cuts) provided a 25% across the board cut in rates. The government wanted some of it back. They eliminated $30 billion in loopholes (deductions and credits) and targeted tax shelters with the Tax Reform Act of 1986.

Talk to your CPA and advisor regarding potential tax planning moves. Generally with potential reform – lower future taxes – consider deferring income and accelerating deductions. Some ideas:

  • Deferring income – You sell a stock or rental property in December and you’ll owe taxes four months later. If you wait until January, the bill is due in over a year. However, the risk is price fluctuation.
  • Deductions – Maximize retirement and HSA contributions by year end. Accelerate your eligible medical and dental procedures, prepay property taxes and mortgage payment, and make your charitable donations. Review lax loss harvesting in investment accounts.
  • Business owners and contractors – Defer income to January, and buy needed equipment and pay employee bonuses by Christmas.
  • Don’t go overboard – The strategies need to make economic sense. Don’t be a spendthrift or trigger alternative minimum tax with excessive deductions.

Final Thoughts

There’s plenty of uncertainty (and unturned cards) – Keep politics away from personal finance. Be flexible and adapt your financial roadmap as greater clarity emerges. And until then be patient and stick to the plan. You saw the markets’ boomerang on election night. And the wall isn’t going to be built overnight.

Here’s to dieting another day. Happy Thanksgiving.

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