Now that President Trump has officially signed off on the new tax bill, we wanted to give a brief summary of how some of the changes may affect you.
- Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Increases the standard deductionfrom $6,350 and $12,700 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
- Expanding the Child Tax Credit from $1,000 to $2,000 for single filers and married couples. The tax credit is fully refundable up to $1,400 and begins to phase-out for families making over $400,000.
- Improves savings vehicles for education by allowing families to use 529 accounts to save for elementary, secondary and higher education. For those of you with kids in private schools, this is a great tool.
- Starting next year, the estate tax will basically double — to about $11.2 million or $22.4 million for a married couple.
- No change on long-term gains and capital dividends (besides an inflation adjustment for 2018)
- No mandatory FIFO stock basis rule starting next year, the Senate version of the tax reform bill would have forced you to use the first-in-first-out (FIFO) method to calculate the tax basis of shares that you sell from taxable accounts. If the price of the shares stair-stepped higher as you bought them, having to use the FIFO method would have meant that your taxable gain would be figured by treating the oldest and cheapest shares as being sold first. That would maximize your gain and maximize the resulting tax hit. Fortunately, this proposed change didn’t make the cut, which is great for investors like you!
- Starting next year, you will not be able to reverse the conversion of a traditional IRA into a Roth account. Under the old-law rules, you had until October 15 of the year after an ill-advised conversion to reverse it and avoid the conversion tax hit. At this point, it is not clear if this change would prevent you from reversing a 2017 conversion by 10/15/18 or if it would only prevent you from reversing a conversion done in 2018 and beyond. So if you have a 2017 conversion that you already know you want to reverse, get it reversed before year-end to be on the safe side.
- Starting in 2019, you will no longer be able to deduct alimony payments if they are required by a divorce agreement entered into after 12/31/18. Recipients of nondeductible payments won’t have to include them in taxable income.
- Lowers the corporate tax rate to 21% (beginning Jan. 1, 2018) down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.
There are many more changes than I have addressed here that may affect you personally or your business. If you have questions, always feel free to reach out to your advisor.
Maeve Beard serves as a Senior VP and Director of Investment Support at Pinnacle Trust. You can reach her by email at firstname.lastname@example.org or by calling the office at 601-957-0323.