Tax Moves To Make For A Clinton--Or Trump--Presidency

Tax Moves To Make For A Clinton--Or Trump--Presidency

Robert Gordon, the president of Twenty-First Securities Corp., is something of a guru when it comes to tax efficient investing. He writes and lectures widely on the topic, and has created the visualization below showing the likelihood of various tax outcomes depending on which political party controls the White House and Congress next year. Despite the uncertainty surrounding the November election, Gordon offers two pieces of specific advice for well off folks seeking to  election proof their finances.

First, no matter who wins, he considers it highly likely the value of certain tax deductions for high-income households is going to be limited. Hillary Clinton and the Democrats would do this to wring more tax dollars from the richDonald Trump and Republicans would use the revenue raised by limiting deductions to pay for a lower tax rate. And if government is divided—say, Clinton occupying the White House and Republicans still in control of at least the House–this is fertile ground for bipartisan compromise. (That’s why the biggest probability circle in Gordon’s graphic is the green one showing tax deductions being limited; it’s likely if Democrats control, Republicans control, or if we continue with divided government.)

What, if anything, can you do now to prepare for lower deductions? One obvious pointer: if you’re high income, don’t buy more house than you want or need, on the assumption you’ll continue to get a fat deduction for that $1 million mortgage.

Gordon’s second specific piece of advice applies if Clinton wins and Democrats gain control of Congress. If that happens, and you’re rich, you should use your $5.45-million-per-person lifetime exemption from gift and estate taxes to transfer wealth now–and preferably to transfer assets you expect to appreciate. That’s because Clinton wants to reduce that lifetime gift and estate exemption to $3.5 million and is likely to copy President Obama in attacking “step-up”–the provision that allows appreciation of assets to escape capital gains taxes when they’re transferred at death. (Tip for tax policy geeks: New research Gordon co-authored with David Joulfaian, of Treasury’s Office of Tax Analysis, and James Poterba, an MIT economics prof who is also CEO of the National Bureau of Economic Research, provides a revealing look at the large amount of  appreciation escaping capital gains taxes through step-up at death.)

Source: Forbes

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