Tax reform will be a top priority for the Trump administration.
Though nobody knows exactly how presidential and congressional proposals will play out, financial advisors are recommending clients take steps now to prepare for any tax changes that may lie ahead.
"We think this a policy shift of enormous magnitude. If Reagan was a Richter 8, this is a Richter 9," said Leon LaBrecque, a certified public accountant and a certified financial planner as well as managing partner and CEO of LJPR Financial Advisors.
Given what we know about these proposals, the tax advice is "very simple," said Roger Stinnett, a CFP, CPA and director of financial planning at Westmount Asset Management. "Defer income and accelerate deductions. Rates will likely go down," he said.
Proposals by President-elect Donald Trump and House Republicans have many similarities. Both plans call for simplifying the personal income tax code from seven to three brackets: 12, 25 and 33 percent.
The tax plans also want to more than double the standard deduction from $6,300 to $15,000 for single filers and from 12,600 to $30,000 for married couples filing jointly.
The Urban-Brookings Tax Policy Center has estimated how much taxpayers would save annually based on their income under tax plans from Trump and the House GOP. (See chart below.)
The trade-off for taxpayers is that deductions are capped at $100,000 for single filers and $200,000 for married couples filing jointly under Trump's proposal.
"This could be a problem for those that have a big mortgage, property taxes and big state taxes," Stinnett said. However, the lower overall tax rate may reduce the financial effect of losing the deductions, he said.
Here are some tax moves advisors are telling their clients to make before the Trump administration begins:
The alternative minimum tax would be repealed under the Trump and the House GOP tax plans.
The AMT repeal would benefit people who have large property taxes and large state income taxes, such as those who live in California, Connecticut, New Jersey, New York and Massachusetts.
Many upper-middle-class households are hit by the AMT. Last year, about 27 percent of households with incomes between $200,000 and $500,000 were affected by the AMT, according to estimates from the Tax Policy Center.
"This might be the most beneficial item to many of our clients," Stinnett said. However, the size of the benefit depends on how lawmakers limit itemized deductions.
High-income people who regularly contribute to charity should plan for a possible limit on deductions by creating a donor-advised fund at a public foundation this year if they haven't done so already, said Thomas O'Connor, a CFP, CPA and a financial planner at WorthPointe.
A donor-advised fund allows you to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time.
Community foundations run a number of these funds, but investment managers such as Fidelity, Vanguard and Schwab have some of the largest donor-advised funds by assets.
Such a fund "avoids future deduction limits and offsets today's 39.6 percent federal tax rate [for the top bracket] instead of the proposed 33 percent rate," O'Connor said.
Trump has proposed ending the estate tax while taxing capital gains on assets upon the owner's death, with a $5 million exemption for single filers and a $10 million exemption for married couples filing jointly.
"It's way too early know if the estate tax will be abolished," said Adrienne Penta, an estate lawyer and executive director of Brown Brothers Harriman's Center for Women & Wealth.
Most high-net-worth clients already have estate plans in place and should stick with those until the Trump administration and lawmakers work out more details about what a repeal of the estate tax would look like, Penta said.
If lawmakers decide to end the estate tax through the budget reconciliation process in the Senate, which only requires a simple majority instead of 60 votes to prevent a filibuster, the ban could be easily overturned in the future.
"We are not putting a hold on clients' wealth transfer plans unless it involves paying gift tax currently," said Brian King, a CPA, CFP and director of financial planning at Plancorp. Tax plans from Trump and the House GOP have proposed eliminating the gift tax.
The 3.8 percent Medicare surtax — technically called the net investment income tax — is on the chopping block in Trump and Republican tax plans.
The tax applies to investment income of taxpayers with a modified adjusted gross income of more than $200,000 for single filers and $250,000 for married couples filing jointly.
If you are subject to this tax, "consider deferring capital gains and any other portfolio income if possible to next year," Stinnett said.