The document discusses key points and tax planning opportunities in light of the recently released Republican tax reform framework. It notes that enactment of tax reform is still a top priority but may slip into early 2018 given the tight timeline. It recommends that individuals take proactive measures to plan for changes, such as the elimination of certain tax breaks for wealthy taxpayers. Key elements of the framework include reduced corporate and small business tax rates but possible higher individual rates, elimination of most itemized deductions besides mortgage interest and charity, and repeal of the estate tax. Careful calculations are needed to understand the potential impact on individuals given different income sources and deductions.

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2. ANDREW KYRIACOU:TAX REFORM UPDATE

3. With the recent release of a tax reform framework by
Republican leaders and the Trump Administration (Unified
Framework), enactment of tax reform is still at the top of the
Republican agenda. The timeline for 2017 is tight and a slide into
the first quarter of 2018 seems likely. In light of the recently
released details, we recommend that individuals take proactive
measures to plan for changes that are likely to occur, including
the elimination of targeted tax breaks that benefit the wealthiest
taxpayers.

4. The impact of the proposals are dependent on each particular
taxpayer’s situation with respect to the mix of capital gain and
ordinary income, types of deductions, and whether the taxpayer
is currently subject to the alternative minimum tax. It is likely
necessary to prepare detailed calculations to gather an
understanding of how the proposals would affect an individual.

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6. So what should individuals be doing now? Here are the
highlights of some key points and tax planning opportunities:

7. The Unified Framework calls for a 20% tax rate for C corporations
and a 25% tax rate for small and family-owned businesses and a
reduction from the seven current tax brackets to three brackets at
10%, 25%, and 35%. The framework provides discretion to create a
higher fourth rate for the wealthiest individuals. A potential new top
bracket is a significant shift in stance for Congressional Republicans
and opens the possibility that the top rate will remain at 39.6% or
could even increase as a part of tax reform. The present law 20% top
capital gain rate is not mentioned and for now we presume it would
otherwise be retained. The possibility of higher marginal tax rates for
high-income taxpayers complicates planning and decisions about
whether to defer discretionary income beyond 2017. The limitation of
the 25% rate to small and family-owned businesses suggests that the
tax base to which this special rate applies could be significantly
narrowed compared with President Trump’s campaign promises.

8. The 3.8% net investment income tax will not be considered as
part of tax reform legislation. Instead, this tax is being
considered as a part of health-care legislation which is currently
stalled in the Senate. While healthcare reform was unsuccessful
through the fiscal year 2017 budget reconciliation process, it is
likely to be a Republican priority in fiscal 2018. Retroactive
repeal of the net investment income tax for 2017 now seems very
unlikely. The possibility of higher marginal tax rates for high-
income taxpayers complicates planning and decisions about
whether to defer discretionary income to which the 3.8% net
investment income tax applies.

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10. The Unified Framework eliminates all itemized deductions
other than for home mortgage interest and charitable giving,
including the elimination of the deduction for state and local
income and real property taxes. The elimination of deductions
for state and local taxes and other deductions means that higher
income taxpayers, particularly residents of high-tax states may
experience a tax increase rather than a tax cut under the
proposal, regardless of whether a fourth top tax bracket of
39.6% (or higher) is included.

11. The Unified Framework renews calls to repeal the individual
alternative minimum tax (AMT). However, as noted above,
under the proposal the regular tax would become similar to the
present law AMT with an increase in rate from 28% to 35%, or
even 39.6% (or higher).

12. The Unified Framework also calls for the repeal of the estate tax
and generation skipping transfer tax but does not call for repeal
of the gift tax. Until there is greater detail regarding the repeal
of the estate tax, we recommend that individuals not make gifts
that result in gift tax. Moreover, there is some belief that if the
estate tax is repealed, the carry-over basis rules will replace the
stepped-up basis rule. You should evaluate the impact that the
potential repeal of the stepped-up basis rules would have on
your individual estate plan.