Tax-rate reductions in the Tax Cuts and Jobs Act of 2017 are set to expire at the end of 2025. But, according to Dave Alison, it’s safe to say that Donald Trump, the president-elect, won’t let the vast majority of them sunset.
“An extension is a tax cut across the board … for businesses, individuals — from the ultra-high-net-worth to an average retiree,” Alison, CFP, founding partner and president of Prosperity Capital Advisors, and founder and CEO of Alison Wealth Management, tells ThinkAdvisor in an interview. “Expiration would create a tax increase for almost everybody.”
While campaigning, Trump proposed additional tax cuts, like eliminating taxes on tips, overtime and Social Security benefits. How the federal government, with its $35 trillion deficit, will make up for that loss of tax revenue is easier said than done.
While Trump says it will be achieved by increasing tariffs, “that could really hurt the economy,” argues Alison, an enrolled agent and an expert in tax strategies.
Financial advisors need to be knowledgeable about all tax cuts because “any time there’s a massive change that’s going to come about on the tax side, it has a huge ripple effect on them,” Alison says.
In the interview with Alison, a 2023 ThinkAdvisor Luminaries award winner for Thought Leadership and Education, he also discusses Trump’s support of cryptocurrency. On Gary Gensler, the chair of the Securities and Exchange Commission who has given crypto little support: “He’s one of the ‘You’re fired!’ guys.”
Here are excerpts from our conversation:
THINKADVISOR: Does President-elect Trump want to cut income taxes for individuals as well as for businesses?
DAVE ALISON: There are new potential tax cuts and also the extension of the tax cuts from the 2017 Tax Cuts and Jobs Act that are set to expire at the end of 2025.
There’s a very high probability that he’s going to be able to extend most of those tax-cut provisions.
Expiration would have created a tax increase for almost everybody. An extension is a tax cut across the board. That will mean almost everybody — businesses, individuals — from the ultra-wealthy all the way down to an average retiree or someone continuing to accumulate money [for retirement].
What about new tax cuts?
There’s talk of further tax cuts for individuals and corporations that Trump campaigned on, but there’s a lot of consideration around how they would impact the budget in view of the $35 trillion in debt the country has.
What’s the most radical tax idea that Trump presented when campaigning?
Eliminating the income tax system and supporting the federal government and the U.S. through tariffs. That’s a huge deviation from how we’ve operated for as long as income tax has been around.
There’s a very, very low probability of that happening.
I think Trump’s first [tax] priority will be built around the extension of the tax cuts in the 2017 Act and secondarily, the [cuts] he campaigned on.
Should high-net-worth and ultra-high-net-worth investors be doing anything taxwise about their investments right now?
There’s nothing immediate that they need to do as a knee-jerk reaction, nothing that needs to be done that’s critical before the end of 2024.
The pattern we’re in with our clients is: Let’s wait and see.
January is going to be a big [month] for Congress because we’re coming up to reaching the debt ceiling, and they have to get a budget proposed.
So a lot of the decisions of what the new tax policy might include will start to be made in January, when Trump actually takes office.
Anything advisors’ clients should at least be thinking about?
One thing to consider is the fact that we have a very high estate and gift tax exemption under the 2017 Act that’s going to sunset.
There’s talk that the Republican Party will favor extending that part of the tax cuts.
If that amount remains high into the future, wealthy and ultra-wealthy families might want to consider continuing to use up part of their gift tax exemption around assets that will be earmarked for legacy planning, which they don’t need to have inside their taxable estate or to live off.
Will the proposed new tax cuts have any impact on investing in alternatives?
There are a couple of things from an alt standpoint. The big one is Qualified Opportunity Zones. That was part of the 2017 Act, and it typically impacts high-net-worth people:
With an investment that has a capital gain, you can reinvest the proceeds of its sale in a Qualified Opportunity Zone investment. That allows you to defer some of the tax on the capital gain.
