The 2016 essential tax and wealth planning guide Tax planning in a transforming world Get started Dear Reader, Our contributers As we prepare this guide for publication each year, we take into account recent and proposed tax policy and political changes as a matter of course. However, this year we are also considering several profoundly transformational trends with potential tax Contents consequences that may impact our readers. Continued globalization is a major trend. As more individuals and companies conduct business across borders around the world, they encounter an increasing array of tax issues that should be woven into their tax planning and compliance. Tighter and more highly integrated regulations globally. Governments and standards organizations around the world are responding to increased globalization with a growing number of regulations and rules and stronger requirements for financial transparency from businesses and individuals — the alphabet soup includes FATCA (Foreign Account Tax Compliance Act), CRS (common reporting standards), and BEPS (OECD’s Base Erosion and Profit Shifting initiative), among many others. Increased information sharing and expanded enforcement cooperation between governments are strengthening the new regulations, tax transparency and reporting standards. Social transformation. The US Supreme Court ruling on same-sex marriage, continuation of Obamacare, and the ongoing headline status of immigration reform– these are a few of the truly transformational changes that are reshaping life in the United States. Both businesses and individuals are already experiencing tax impacts of these changes, and more are coming. Technological transformation. The continued rapid proliferation of mobile devices, cloud computing, and social media may seem unrelated to taxation, but the increasingly digital economy in which we live has felt ripple effects across the tax landscape — some overt, some quite subtle — of which both individuals and business leaders should be aware. The 2016 essential tax and wealth planning guide offers many valuable considerations to assist in your tax planning as these trends unfold and your personal circumstances change. No one has a crystal ball, but with heightened awareness of change forces around you, you can be more informed and better prepared for the tax decisions you may face in the next year. To find a member of the Deloitte Private Wealth practice who specializes in your area of interest, please contact us at [email protected]. Regards, Julia Cloud National Managing Partner Private Wealth Deloitte Tax LLP 2 Our contributors Welcome to the guide Contents We thank the following Deloitte Tax practitioners for their valuable contributions to this guide: Craig Boyer Sarah Caplan Karen Brodsky Stephen LaGarde Wendy Diamond Moira Pollard Debra Estrem Jacqueline Romano Eddie Gershman Micaela Saviano Laura Howell-Smith Mike Schlect Craig Janes Tracy Tinnemeyer Eric Johnson Molly Antell Jeff Kummer Evan Beard Pat Mehigan Meghan Kerns Bina Patel Trisha McGrenera Doug Robb Deloitte Private Wealth Sustain, enhance, and protect your wealth Deloitte Private Wealth focuses on the specialized needs of the ultra-affluent, including families with multi-generational wealth, entrepreneurs, and closely held business owners. In an era of complex tax laws, stringent regulations, and a turbulent investment environment, we are highly valued as trusted private wealth advisors with knowledge and experience, broad resources, and global scope. As used in this document, “Deloitte” means Deloitte Tax LLP, which provides tax services; Deloitte & Touche LLP, which provides assurance services; Deloitte Financial Advisory Services LLP, which provides financial advisory services; and Deloitte Consulting LLP, which provides consulting services. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. 3 Contents Home Introduction Current environment Income tax planning Wealth transfer planning Resources 4 Introduction Promising 2014 tax reform efforts The current legislative stalled Status of key expired tax provisions • Senate developments environment: Still • House developments • Prospects unclear waiting for tax reform Tax policy and the 2016 presidential elections • Rate lowering/base broadening tax reform • Repeal-and-replace tax reform proposals • Difficult policy decisions remain National retail sales tax • How it works • Issues in rate setting • Large and complicated rebate system • Problem for states • Other criticisms Flat tax • How it works • Opposition to flat taxes Planning for today with a view of tomorrow • Continue to plan; work with what you know • Adopt a view of the future and plan accordingly • Be wary of quick answers and simple advice • Watch for opportunities and know your risks 5 Introduction The current legislative environment Promising 2014 tax reform efforts stalled Introduction Status of key expired tax provisions • Senate developments • House developments • Prospects unclear Tax policy and the 2016 presidential elections • Rate lowering/base broadening tax reform When voters in last November’s midterm congressional elections opted to remains unclear in the face of skepticism from some high-profile policymakers and • Repeal-and-replace tax reform consolidate control of the House and Senate with the Republican party, they the realities of a crowded legislative calendar in which Congress must confront proposals arguably gave the GOP a stronger hand in shaping tax policy — including, other politically thorny issues such as legislation to fund the federal government for • Difficult policy decisions remain potentially, reform of the federal tax code — in the 114th Congress, which fiscal year 2016, lift the statutory debt limit, and address the dozens of temporary convened at the beginning of this year. But as 2015 unfolded and the 114th tax “extenders” provisions that expired at the end of last year. National retail sales tax Congress got under way, it became clear that although a major impediment to • How it works the passage of tax reform had been removed, other significant obstacles remained. This section examines how the upcoming presidential election has already • Issues in rate setting begun to reshape discussions over tax reform and how taxpayers can prepare • Large and complicated rebate system Support for enactment of comprehensive tax reform was high, but differences in the face of an uncertain political environment. It also looks at the divergent • Problem for states between congressional Republicans and President Obama over key individual approaches to tax extenders legislation being taken in the House and Senate • Other criticisms income tax issues — such as whether tax reform should be used to raise revenue and how that debate could be resolved in the coming months. and whether the tax code should be made more progressive — appeared Flat tax insurmountable. By the spring, House Ways and Means Committee Chairman • How it works Paul Ryan, R-Wis., and Senate Finance Committee Chairman Orrin Hatch, R-Utah, • Opposition to flat taxes were signaling that a comprehensive overhaul of the federal tax code likely would Planning for today with a view of have wait until after 2017, when a new president is in the White House. tomorrow • Continue to plan; work with what Representative Ryan and Senator Hatch subsequently began to explore the you know possibility of piecemeal tax reform that would focus on the business side of the • Adopt a view of the future and plan code — an approach Ryan dubbed a “down payment” on tax reform; but that accordingly • Be wary of quick answers and effort faltered due to concerns expressed by small business groups as to how simple advice passthrough entities and sole proprietorships would fare, relative to their • Watch for opportunities and know corporate peers, under such an approach. your risks As Congress returned from its summer recess, Ways and Means Chairman Ryan was attempting to generate support for an international-only tax reform package that would be tied to must-pass legislation to extend funding and spending authority for the cash-strapped Highway Trust Fund. (Under the plan, one-time revenue from a “deemed repatriation” of previously untaxed foreign-source earnings of US multinationals would provide an infusion of cash for infrastructure spending.) The notion of using deemed repatriation to fund the nation’s infrastructure has support from the White House and from lawmakers on both sides of the aisle in Congress; but as this publication goes to press, the success of Ryan’s effort 6 Introduction The current legislative environment Promising 2014 tax reform efforts stalled Promising 2014 tax Status of key expired tax provisions • Senate developments • House developments reform efforts stalled • Prospects unclear Tax policy and the 2016 presidential elections • Rate lowering/base broadening tax reform As we look ahead to the presidential campaign dominating the political scene As promising as these developments were, ultimately, the tax reform debate • Repeal-and-replace tax reform in 2016 and potentially setting the stage for tax reform efforts in the next was derailed due to a number of factors. Chief among these was a change in proposals administration, it is worth looking back to assess the