There are a lot of tax proposals floating around these days. At this point, don’t count on any of the following passing, but it is helpful to know what could be coming down the road. Currently being discussed as part of the Debt Ceiling conversation:
- Reduced tax deductions and reduced tax brackets. On the surface, the proposed top rate of 23% – 29% might look great. But when you consider that deductions changes… look out!
- No more alternative minimum tax. Whew… AMT no longer makes sense. If they really eliminate it, instead of just doing one year bandaids it would make planning a lot better.
- Mortgage interest deduction goes away. It will instead be turned into a 12% tax credit. If you’re at a tax bracket higher than that (like most middle class Americans), you’ve just lost a major deduction.
- Mortgage interest deduction, if it’s kept, would be limited to $500,000 of debt.
- Home-equity loans and 2nd residence loans would no longer be deductible.
- C Corporation top tax rate would be between 23-29%
- Businesses will probably lose the Production Deduction and R & D tax credit.
The best plan right now is to stay flexible. We don’t know for sure what will pass, or when. But if last year is any indication, we may get tax changes at the last minute with retroactive laws. That makes tax planning very difficult if you aren’t already working closely with a tax strategist.