Dog Blog – 3 Winners and Losers of the New Tax Act
Published by Lucky the dog
Dear Humans,
Every day is made up of a series of wins and losses. For instance, yesterday my two main “wins” were chasing after Audra the cat until her tail got all puffy, and sneaking behind Rob Taylor to eat some of my sister Coco’s dinner! Her kibble always tastes so much better than mine (even though it comes from the same box). However, some losses include the bitter cold weather that I had to endure during my nighttime walk (no coat is fluffy enough to handle that) and Rob pulling me away from Coco’s kibble mid-bite (which was very rude).
But regardless of the good and bad moments respectively, each day that I spend in the Taylor household is a good day because I love my family. Unfortunately, not everything results in a net positive for everyone, specifically with the Tax Cuts and Jobs Act of 2017! Depending on your family’s financial situation, the Tax Cuts and Jobs Act could have financially helped your family, hurt your family, or simply been a mixed bag. Below are 3 winners and losers of the Tax Cuts and Jobs Act (TCJA).
- Doubling of Estate Tax Exemption
The TCJA doubled the estate tax exemption from $5.49 million to $11.18 million for individuals, and from $11.18 million to $22.36 million for couples. These amounts will continue to be adjusted annually for inflation through 2025. Winners of this change are certainly high net worth individuals, as a married couple can now shelter up to $22.36 million from federal estate tax. Losers of this change include high net worth individuals in states with high state death taxes, such as New York, Massachusetts, and Pennsylvania, where the marginal state death tax rate can be as high as 16% for taxpayers with assets in excess of $11 million.
- Changes to Itemized Deductions and Charitable Contributions
Under the new tax laws, the standard deduction was essentially doubled and the “Pease” limitation was removed. The Pease limitation was essentially a stealth tax that previously reduced itemized deductions by 3% of AGI above $261,500 for individuals and $313,800 for married filing jointly. On the positive side, the new tax laws allow taxpayers to reduce taxable income by excluding up to $100,000 of an RMD from gross income by giving it to charity. The winners of this change include people who believe in tax simplification, but losers include charities who are being hurt by the doubling of the standard deduction..
The TCJA now allows distributions from 529 plans to be used to pay up to a total of $10,000 of tuition per beneficiary (regardless of the number of contributing plans) each year at an elementary or secondary (k-12) public, private or religious school of the beneficiary’s choosing. Winners of this change include parents who want to send their kids to private elementary and secondary schools in the future. Losers of this change include parents who sent kids to private school 5 years ago and can no longer benefit, and parents who live in states that have not changed the state laws for 529 plans to match the federal consensus. Be careful about the latter because about twenty states have decoupled from the federal and are taxing the distributions if made for K-12.
Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.
In conclusion, depending on your family’s financial situation, the changes that the TCJA made might be financially beneficial or detrimental, and they could even be both! Regardless, make sure that you are getting the best tax and financial advice for your specific situation. If you have any questions about whether your financial future has been affected by the TCJA, feel free to contact the Taylor Financial Group team for assistance.
Till next time,
Lucky Taylor
This article 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.
https://www.hrblock.com/tax-center/irs/tax-reform/new-tax-brackets/
https://www.irs.gov/newsroom/irs-offers-guidance-on-recent-529-education-savings-plan-changes