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Private Client Services webcast series: Looking ahead to year-end


The presidential election victory of Donald J. Trump and a Republican-held House of Representatives and Senate signal major changes.

Join leaders from RSM’s Private Client Services and Washington National Tax practice for a review of how 2016 tax developments may affect your year-end and future tax planning.  

The discussion will explore key topics to consider in planning for the end of the year, including:

  • The implications of the election results on income and estate tax planning for the rest of 2016…and beyond
  • Anticipated 2017 tax developments
  • Year-end individual income and estate and gift tax planning

Download webcast slides

Following are answers to questions submitted during the "Private client services: Looking ahead to year-end" live webcast:

The 2016 election and Congress – What does the future hold?

Responses provided by Dave Kautter, partner

Q: Are President-elect Trump’s and the GOP’s reduced tax rates a possibility for 2017? Or more likely 2018?

A: I think it is possible that most, if not all, changes could be effective in 2017. I have two reasons for saying that. The first reason is that in the past Congress has realized that if they promise lower rates the following year than the current year, people will try to wait until the following year, if they can, to get the lower rates. That tends to “lock up” the economy, e.g. capital assets don’t get sold, income gets deferred, etc. Second, the Republicans believe strongly that tax reductions are essential to getting the economy growing faster. With that belief, it seems to me that they will want the tax cuts to become effective as soon as possible. In the end, it is impossible to know. Still, I think there is a high likelihood that the effective dates could well be next year.

Q: Do President-elect Trump’s limits on Itemized deductions up to $200,000 include limits on charitable contributions?

A: In his original release on the $200,000/$100,000 limit, President-elect Trump did not say anything specifically about charitable contributions. I have seen a few statements in the press that say there will likely be some sort of special carve-out for charitable contributions, but I haven’t seen anything formal on that.

Q: In the business tax reform proposals are they proposing a revised tax return for partnerships and S corporations so that owners are taxed at the S corporation or partnership level?

So far, neither the House Republican nor President-elect Trump’s proposals say anything specifically about this. Right now, as near as I can figure, neither proposal would require an entity level tax. Earnings would still flow through to the owners and tax would be imposed there at the lower rates compared to current law. Both would require the flow-through entity to report slightly different information on the K-1 so the owners to properly compute tax but, as of right now, it doesn’t look like there would be an entity level tax. Still a long way to go, though.

Q: In the example about potential changes to estate taxes, it was stated that you'd be paying capital gains taxes on the $99,000 increase in value. Would that not fall under the $5/10 million exemption?

A: Correct. Tax would only be owed to the extent that the total appreciation in an estate exceeds $10 million. There are still a lot of details missing with respect to this aspect of President-elect Trump’s proposal but it is very clear that only appreciation in excess of $10 million would be subject to tax at death.

Q: How do charitable contributions get factored into the cap on itemized deductions?

A: In his original release on the $200,000/$100,000 limit, President-elect Trump did not say anything specifically about charitable contributions. I have seen a few statements in the press that say there will likely be some sort of special carve-out for charitable contributions, but I haven’t seen anything formal on that. At this point, it looks like the $200,000/$100,000 under Trump’s proposal would include all charitable contributions. In other words, the total amount deductible including charitable contributions that could be deducted as an itemized deduction seems to be $200,000/$100,000. The House Republican proposal is more generous in that it continues current law by allowing charitable deductions in full. It is hard to predict at this point where this will come out but that is the current state of affairs.

Q: No carve-out for the investment interest expense deduction seems unfair. Has there been any discussion amongst the Republican Party to keep that deduction?

A: What has been released by both the House Republicans and President-elect Trump both have a lot of gaps. The House Republican proposal simply says that business interest expense deductions would only be allowed to the extent of interest income. There is no limiting language. President-elect Trump’s proposal is different in that he would only eliminate the business interest deduction for manufacturers who elect immediate expensing of capital purchases. Everyone else would keep current law. So, there is a difference of opinion on this within the Republican Party. With respect to the House Republican proposal, it seems eliminating business interest deductions for every business in the country while using it as a way to finance immediate expensing for capital purchases is too broad. There are three other reasons why the House Republicans have made this proposal. One is that they are concerned that businesses in the country are over-leveraged. The second is that they believe the interest deduction favors debt over equity and that is one reason for some of the debt leveraging that goes on right now. Finally, the House Republicans think they may need to do this if they want to make the corporate income tax “border adjustable” so it works like a value-added tax. In any event, this will be a central issue in the upcoming debate on tax reform and it is impossible at this point to figure out how it will turn out.

Q: Will the Pease limitation on charitable contributions be repealed?

A: At this point, we don’t know what will happen to the Pease limitation. There is nothing at all in the House Republican on the Pease limitation. President-elect Trump said in an early campaign document that he would “steepen the curve” on the Pease provision. It is still unclear what he meant by that and I don’t expect any more clarity on that statement any time soon. It is also worth noting that the language on steepening the Pease phase out was made before President-elect Trump proposed his $200,000/$100,000 overall limit in itemized deductions. So, we also don’t know what impact his proposed overall limit might have on his views on the Pease phase-out. I know it is not much of an answer but I am afraid that is all we know right now.


2016 year-end income tax planning

Responses provided by Beth Grubb, partner

Q: Can you discuss the advantages or disadvantages of making charitable contribution using an individual retirement account?

A: One disadvantage is that the IRA owner does not get the cash from the required minimum distribution (RMD). An advantage is that the RMD is not included in adjusted gross income (AGI). When AGI is lower, the client can deduct more itemized deductions (lower itemized deduction limits and credit phase outs). Please see the charitable giving section of the RSM Tax Planning Guide for additional information regarding this topic.

Q: Did you say a Roth conversion is very important to do now since tax rates are bound to go down?

A: No. The decision to make a tax deductible traditional or a tax-free Roth contribution is even more important now than ever if future tax rates start to drop.

Q: Since future tax rate will be low, is there a benefit to defer Roth conversion?

A: You must crunch the numbers to determine if there is a benefit to your specific situation.

Q: What is a back-door Roth?

A: Contribute to a traditional nondeductible IRA and roll the balance from the nondeductible IRA to the Roth; your investment company needs to set up two IRA accounts, a nondeductible IRA and Roth IRA. On Form 8606 in year of contribution report contribution o as nondeductible and report the rollover from it to the Roth.

Q: Regarding a back-door Roth, are you comfortable making a non-deductible IRA and doing a Roth conversion in the same tax year?

Yes. We recommend the transaction occur soon after the contribution. I have never seen a problem with the timing of the transaction.

Q: How do you plan for trusts when individual rate will go down?

A: Plan to distribute as much income as possible to individuals from the trusts. (See slide 32 on net investment income tax.)


2016 year-end estate and gift tax planning and a look ahead

Responses provided by Charles L. Ratner, senior director

Q: What are your expectations with regard to provision to eliminate estate tax but implement capital gain on holdings instead of stepped up basis?

A: It appears at this juncture that there are differing views on that question within the GOP. And, as we discussed on the webcast, there is much to be learned about how (and when) any such capital gains tax would be imposed.

So, we are not able to say anything more than we did on the webcast, though as far as any expectations are concerned, I certainly expect that there will be robust discussion about basis (and retention of the gift tax as well).

Q: What about gift tax rules under Trump?

A: So far, his proposals do not address the gift tax. While not making a prediction, I certainly wouldn’t be surprised if the gift tax were not repealed.

Q: At what level should someone consider gifting-how much in assets and at what age?

A: I assume that the gifting you refer to would be for estate tax planning purposes. In that context, whether and when someone should consider giving away money/property is totally dependent upon that person’s situation with all the variables and considerations you can imagine. One thing we do recommend is that before anyone considers major gifting (especially of financial assets), they should do a long-range cash flow projection to be sure they have enough “margin of error,” just in case.

Q: Do you think state estate tax will go away if federal estate tax goes away?

A: Just my view, but I guess it would make sense that without a federal estate tax, administration of a state “death” tax regime might be more difficult. I also suspect that we could see more states eliminating death taxes for competitive reasons.

Q: Can a trust that has oil land and receives royalties be considered active income?

A: No, pure oil and/or gas royalties, from owning land with a well someone else has drilled are considered investment income, similar to interest and dividends. It would not be classified as active or passive.

Q: Are assets left in a qualified terminable interest property (QTIP) or bypass (B) trust exempt from nursing homes and creditors?

A: As a very general rule, these trusts are used to shield the trust corpus from claims of creditors of the surviving spouse (and children, perhaps, who are beneficiaries of the B trust). However, there are always exceptions, so you should consult with counsel on the question of what types of creditors (and in what situations), federal or state law might allow access to the trust’s assets.



Event details

Who should attend
Business owners, high net worth individuals and families, and related finance and tax professionals.


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