Published by Taylor Financial Group
The recently passed Tax Cuts and Jobs Act (TCJA) is the most far reaching tax legislation since 1986 and it effects every individual and business in America. As a result, we have been working with clients all year on the many ways that the new tax laws impact them and the strategies we can use to help you benefit from the new laws.
To guide you further, we have attached a Summary of the Key Tax Changes, as well as a Quick Reference Tax Guide. In addition, we have listed some of the key highlights below. It is not too late to engage in tax planning. We encourage you to think about this and stay tuned over the next few weeks as we will be sending out additional information on the New Tax Act.
Key Highlights on New Tax Changes:
Deductions Have Changed
- The standard deduction has nearly doubled to $12,000 for singles and $24,000 for married couples. Four out of five taxpayers are expected to benefit and 90% of taxpayers are expected to rely upon the standard deduction.
- Miscellaneous itemized deductions (such as investment fees and tax prep fees) are no longer allowed.
- “Bunching” deductions involves itemizing expenses one year and using the standard deduction the next year to take advantage of all deductions. This makes sense for those who are close to the standard deduction cap. Think about your tax situation over two-year periods.
- The limit for deducting out-of-pocket medical/dental expenses in 2018 drops to 7.5% of AGI and then will increase to 10% in 2019, so spend on your medical and dental in 2018!
Your Home Will Cost You
- New tax savings may disappear if you live in a high-tax state (such as New Jersey, Maine, New York and California). Real estate prices will be negatively impacted.
- Previously, taxpayers had the unlimited ability to deduct state, local, property and sales tax. Presently, that SALT deduction has been reduced to $10,000. This profoundly affects those in high tax states. The SALT cap will be felt most acutely in high-tax states including: CA, CT, IL, MD, MA, MN, NJ, and NY. Watch for state governments to respond, although those workarounds are likely to go nowhere.
- Interest deduction on new mortgages is now capped at $750,000, down from $1 million. Previous mortgages will be grandfathered in. The luxury and second home market will feel this impact.
- Home equity loan interest is no longer deductible unless it is used in connection with home acquisition or improvement. No more trips to Aruba!
Family Can Help
- You can now claim a $2,000 tax credit per child (up from $1,000), and $500 for non-child dependents, and the credit won’t begin to phase out until $200,000 (singles) and $400,000 (married couples). Up to $1,400 is refundable- you’ll receive money back even if no taxes are owed. This will be a game changer for lots of families.
- Section 529 plans can now pay up to $10,000 annually for K-12 education; previously the plans were limited to college, vocational and graduate school tuition, room, board and all related expenses.
- Starting in 2019, there will be new divorce tax rules implemented: Alimony is no longer deductible for the payer, nor is it considered income to the payee. That means less money to go around.
- Roth IRA conversions can no longer be reversed (recharacterized). But, we still love Roth IRA’s!
- The federal estate tax now applies to estates valued at $11.2 million for individuals and $22.4 million for couples. This will affect less than .08% of people.
Benefits for Businesses
- Many business owners will be allowed to take a 20% deduction for qualified business income (QBI), which phases out starting at income over $157,500/$315,000 (single/married) and is eliminated at $207,500/$415,000 (single/married). Everyone with a business who can qualify for this deduction, should try.
- Business owners may want to seek advice about how to manage income, deductions, reorganizing their firm for better tax treatment, and to review new depreciation rules on the deductibility of capital equipment and other assets.
There are lots of opportunities here for tax savings. If you have not already, please provide us with a copy of your tax returns so that we can start reviewing it and provide comments. Of course, if you would like to discuss any questions, please do not hesitate to contact us.
This piece is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera Advisor Networks LLC is under separate ownership from any other named entity.
Professional Advice Disclosure: None of the information contained herein is meant as tax or legal advice. Tax laws are complex and subject to change. Please consult the appropriate professional to see how the laws apply to your situation.