For more individuals, getting a handle on taxes has never been easy. In fact, a recent survey found that 57% of Americans were not confident in their understanding of the tax code and 53% were not confident in their ability to file their taxes without assistance. With the passing of the Tax Cuts and Jobs Act in December 2017, it can only be expected that those percentages will increase.
Many of our clients at Reynders, McVeigh are wondering what the new tax reform means for them. While our investment approach remains the same, we wanted to share a few notes that we have developed on different areas of the new law that may impact certain decisions in 2018.
It is important to note that over the next year, state rules and laws may change in response to the federal adjustments. In any case, it may be prudent to discuss these changes with your portfolio manager, accountant or estate attorney. If you are a client, please do not hesitate to contact us should you need introductions to an account or estate attorney, as we are happy to help you navigate these changes.
Gifting: Gift tax exclusion is now $15,000 per person. If you have been considering large lifetime gifts to family members, and met your previous limit of $5.4 million, you could now think about gifting more, up to the $11.2 million level, or $22.4 million for married couples.
Charitable planning: If you gift regularly via check or low cost stock, you may consider bundling gifts into a single tax year to bring values above the new, higher standard deduction level.
Education: 529 Plans may now be used for up to $10,000 of private or religious school tuition per year.
Alimony: Changes apply only to divorces after December 31, 2018. The deduction for payment will be eliminated but those who receive it will not pay income tax on it.
Estate taxes: The top rate of 40% now applies to estates valued over $11.2 million for singles or $22.4 million for married couples. State tax limits have not changed.
* The following information is from FactCheck.org, a project of the Annenberg Public Policy Center of the University of Pennsylvania. These notes may or may not be applicable to your personal situation. Questions as a result of the following information should be directed to your accountant.
Individual alternative minimum tax (AMT): The AMT is a parallel tax system with a separate set of rules that some taxpayers, those earning above a certain amount, must follow when calculating their tax liability. Under the new tax reform law, the AMT exemption amounts will increase to $70,300 for single filers and $109,400 for joint filers and will phase out for those taxpayers at $500,000 and $1 million, respectively, according to the nonpartisan Tax Policy Center’s analysis of the bill.
Standard deduction: The amount that you can deduct from your income before calculating your tax liability if you do not itemize your deductions. Under the new tax reform law, the standard deduction would increase to $24,000 for joint filers; $12,000 for single taxpayers; and $18,000 for heads of households.
Personal exemption: The personal exemption, or the amount that can be deducted from your income for every taxpayer and most dependents claimed on your return, is eliminated under the new law.
Child tax credit: Under the new law, the credit would increase up to $2,000 per child, and the first $1,400 would be refundable, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit would increase from $110,000 to $400,000 for married couples filing jointly.
State and local: The state, local and real estate tax deduction will be capped at $10,000.
Mortgage deductions: For current mortgage holders, there is no change. But the deductible limit drops to $750,000 for new debt incurred after December 31, 2017.
Medical expense: Taxpayers can deduct medical expenses that exceed 7.5 percent of Adjusted Gross Income (AGI) in 2017 and 2018, but the new deduction level ends January 1, 2019.
Limits on itemized deductions: Under the new law, itemized deduction limits are repealed through the 2025 tax year.
DISCLOSURE: The guidance provided herein, published in March 2018, is educational in nature, and is not intended as the primary basis for your investment, estate or tax planning purposes. Reynders, McVeigh Capital Management LLC. (“RMCM”) does not provide legal or tax advice. Any information provided by RMCM on estate and/or tax planning is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. Keep in mind that investing involves risk. Certain statements may be deemed forward-looking, but any such statements are not guarantees of any future results and actual results or developments may differ materially from those discussed. The value of your investment will fluctuate over time, and you may gain or lose money. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed, and RMCM disclaims any duty to update any of the information and data contained herein.