Between now and year-end — and perhaps well beyond — we can expect the popular news to be dominated by the tax reform debate. The last tax reform law to pass muster was in 1986, thanks to President Reagan and Speaker Gephardt. Their reform was a true bipartisan effort. It seems we’ll need another two-party effort to reform our system this time around. How can you protect yourself now if you don’t even know if a bill will pass or what it will include? Read on…
Quick winner and loser summary
Winners under the proposed bill:
- Pass-through income business owners – 80% of the businesses in the US
- People who don’t use or overuse deductions – cuts both ways
- People who inherit very large estates – from the farmer to the mogul
Losers under the proposed bill:
- High tax state residents – New York, California and New Jersey
- People who deduct charitable contributions and mortgage debt – affects borrowers and generous types
- High income earners – if you make more, you pay more
No one can object to this idea
One feature of the proposed bill – reducing the number of tax brackets to three from the current seven – seems to be a win for everyone. Three brackets simplify your tax calculation. Simplification reduces the chances of tax trickery. With only three brackets it would take a lot of deductions to move down one rung, and many of those big deductions may be gone under the new bill anyway. All in all, simple is better when it comes to doing taxes.
Tax change is not tax reform
Tax reform in the US is rare, happening once in a generation at best. There have been changes to the tax code over the last three decades. The changes do move the needle somewhat but are not true reform because they are not big enough. The changes have been identified with the President at the time. Clinton’s 3.8% high earner bracket, Bush’s estate tax reduction, and Obama’s 3.8% income surcharge are notable examples. If there is tax reform a lot of credit will go to the current President, even though it is Congress who votes on reform. The President has no vote. He can only propose and suggest.
What you can do now while you are waiting for tax reform
It’s possible that we may not get tax reform this year, or in the election year 2018. If so, we have to live with our clunky antique Code for a while longer. Can your investments thrive, not just survive, the next two years? Absolutely. Most Osbon Capital clients pay almost no taxes on investment gains. Call us to find out how, and we’ll give you something you can verify with your accountant. Second, plan on paying no taxes on your gains for a long time into the future. This subject requires a meeting, which we can arrange on request. Remember, the only measure of investment performance that really matters is after-tax return — that’s what you can spend, reinvest or give to others. Osbon Capital was established in 2005 strongly focused on increasing after-tax returns for individuals. We’re used to it. You can get used to it, too.
You may enjoy reading this article on how to suppress your taxes because it also discusses parts of our tax strategy.
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