// Tax Reform and Financial Planning//

By: Visionary Horizons Team

1/25/18 Editor’s Note: the end of the blog post indicated that CPAs would be presenting at our Tax Forum.  This is no longer the case.  Tax professionals will be attending the forum for ancillary questions.  The Tax Forum will be presented by Visionary Horizons advisors.

By now, you’ve heard about the sweeping tax legislation that has been signed into law.  If you’ve spent any time on social media, or online, then you know there are varying opinions across the board.  This piece is not meant to discuss the merits of tax reform, but rather the facts and how it may affect your personal financial planning.  Full disclosure:  Visionary Horizons is not qualified to give you tax advice and this post should not be taken as advice; however, knowing these rules and how they apply to your personal situation is important for the application of our services.  It should also be noted that some of these new changes have sunset provisions – meaning they will go in to affect in 2018 and phase out by 2025.  This piece serves as a summary of the major changes to current tax laws, but does not include all the changes.

So, without further ado, here are a few of the major changes to the current tax laws and how they might impact you:

New Tax Brackets – They are lower. Most individuals and families will realize a reduction in taxes. These provisions will phase out by the end of 2025. *You may notice a potential for increased taxes for a married couple who are both high income earners.

 Single Filer

$0-$9,525                                             10% of taxable income

Over $9,525-$38,700                         $952.50 + 12% on amount over $9,525

Over $38,700-$82,500                       $4,453.50 + 22% on amount over $38,700

Over $82,500-$157,500                    $14,089.50 + 24% on amount over $82,500

Over $157,500-$200,000                  $32,089.50 + 32% on amount over $157,500

Over $200,000-$500,000                  $45,689.50 + 35% on amount over $200,000

Over $500,000                                     $150,689.50 + 37% on amount over $500,000

Married Filing Jointly

$0-$19,050                                           10% of taxable income

Over $19,050-$77,400                       $1,905 + 12% on amount over $19,050

Over $77,400-$165,000                    $8,907 + 22% on amount over $77,400

Over $165,000-$315,000                  $28,179 + 24% on amount over $165,000

Over $315,000-$400,000                  $64,179 + 32% on amount over $315,000

Over $400,000-$600,000                  $91,379 + 35% on amount over $400,000

Over $600,000                                     $161,379 + 37% on amount over $600,000

 

Higher Standard Deduction, No Personal Exemptions The standard deduction practically doubles, but the loss of personal exemption may offset this for some families. 

Single Filer – Increased to $12,500 from $6,350

Married Filers – Increased to $24,000 from $12,700

 

Child Tax Credit – The credit is doubled, but will phase out by the end of 2025.  *Depending on the situation, this additional tax credit will likely offset the loss of personal exemptions for larger families.  This credit will phase out by the end of 2025

Tax Credit à Increased to $2,000 from $1,000 per qualifying child.

Income Limitations à  Single Filer increase to $200,000 from $75,000; Married Filers increased to $400,000 from $110,000.

 

Qualifying Dependent Credit – A new tax credit for children who are not qualified (over age 17), but are still claimed as dependents.  This new credit also extends to dependents parents being cared for in the home.  This credit will phase out by the end of 2025

Tax Credit – $500

Income Limitations –  Single Filer up to $200,000; Married Filers up to $400,000.

 

“Kiddie Tax” Rules – Unearned income will now be subject to Trust Tax brackets.  This is a change from paying taxes at the parents’ tax bracket and the child’s own tax bracket on the initial $2,100.  These are higher tax brackets.

$0-$2,550                             10% of taxable income

Over $2,550-$9,150           $255 + 24% on amount over $2,550

Over $9,150-$12,500         $1,839 + 35% on amount over $9,150

Over $12,500                       $3,011.50 + 37% on amount over $12,500

 

Itemized Deductions – There are several changes and they will impact each individual or family differentially. Here are the notable changes

Investment Advice Fee – no longer deductible

State and Local Taxes – you only deduct up to $10,000

Mortgage Interest – the interest deduction cap is set to a debt level of $750,000 (down from $1,000,000) for homes purchase in 2018 and beyond.  There is no longer a deduction for interest on home-equity loans.  Additionally, there is no longer a deduction for moving expenses or employer-provided expense reimbursement (except for members of the military).

Medical Expenses – expenses exceeding 7.5% of AGI may be deducted.  This is a decrease from the previous 10% threshold. This is only available for 2017 and 2018.

 

Capital Gains Rates and Qualified Dividends – The new laws retain the current tax rate, but the thresholds do not step up with the new tax brackets.

 LTCG Tax Rate                 Single                                    Married Filing Jointly

0%                                          $0-38,600                             $0-$77,200

15%                                        $38,601-$425,800              $77,201-$479,000

20%                                        $425,801 or more                $479,001 or more

 

Estate and Trust Tax Brackets – The number of brackets has been reduced to 4 from 5.

 $0-$2,550                             10% of taxable income

Over $2,550-$9,150           $255 + 24% on amount over $2,550

Over $9,150-$12,500         $1,839 + 35% on amount over $9,150

Over $12,500                       $3,011.50 + 37% on amount over $12,500

 

529 Plan – The big changes is the ability to now use distributions tax-free for private elementary and secondary school expenses.  Unfortunately, this does not include homeschool expenses.  This change makes Coverdell accounts even less attractive.  There are limits to the distributions.

 Distribution Limit – $10,000 per year, per student.

 

Qualified Business Income Deduction – This new legislation will allow a 20% income deduction for qualified business income on pass-through entities, such as LLCs, partnerships, S corporations, and sole proprietors.

 QBI Deduction Limit – lesser of 20% of business income or 50% of the total wages paid to employees by the business.

*Please note that this piece of legislation presents various planning opportunities that fall outside the scope of this blog post.

 

In Summary

Each individual, family, and business owner(s) will want to speak collaboratively with their financial AND tax professional to understand the impact of these new tax laws.  Essentially, all taxpayers will be affected by the new legislation in some capacity – some significantly more than others.

Financial plans will need to be updated to reflect the new tax brackets and sunset provisions in the future.  If you have a financial advisor, it is in your best interest to start 2018 off right and get your plan updated.  If you are currently seeking an advisor, Visionary Horizons would be happy to be considered.

 

Final Thoughts and Further Educational Opportunities

 It may seem obvious, but there are many financial planning opportunities that need be addressed for individuals, families, and business owners.  With changes in cash flow, there may be an opportunity for more savings or to provide employees with company retirement.  Visionary Horizons will be hosting seminars – presented by CPAs – to help you understand how these new tax laws will affect you.

We encourage you to meet with your financial professional, or give us a call, and discuss your personal financial plan.  After all, it’s a new year and there’s new tax laws!

Look for future correspondence from us on our seminars.

 

Thank you,

 

The VH Team

About the author

Broker Check   ›   brokercheck.finra.org