The enactment of the Tax Cuts and Jobs Act (TCJA) represents “the most sweeping overhaul of the U.S. tax code in more than 30 years.”1
For millions of Americans and businesses it means an altered financial and investment landscape with new opportunities and challenges in the years ahead. Keep in mind, however, that the information in this material is not intended as tax advice, and may not be used for the purpose of avoiding any federal tax penalties.
Here’s a brief look at 5 key changes:
Some of the TCJA’s key provisions include a reduction in most marginal income tax brackets, near doubling of the standard deduction, and a $10,000 cap on the state and local tax deduction. The Tax Policy Center projects that taxes will fall for all income groups and result in an increase of 2.2% in after-tax income. The Tax Policy Center also cautions, however, that some individuals and households may see a higher tax bill.2
The TCJA did not adjust the preferential rates of 0%, 15% and 20% for long-term capital gains and qualified dividends. For example, the transition from 15% to 20% capital gains rate will continue to use the top tax-bracket thresholds of $425,800 for individuals and $479,000 for married couples.3
The tax bill introduces several key changes for business owners, including the introduction of a 20% deduction for certain pass-through businesses.5 Business owners may want to review their current business structure (C-Corp, S-Corp, and LLC) and determine what entity is best structured to help them accumulate retirement assets.
529 plans may now be used to fund private elementary and secondary education (for up to $10,000 in distributions per student each year). Prior, they were limited to any eligible post-secondary institutions.4
The estate tax exemption was raised to $11.2 million, a doubling of the $5.6 million that previously existed. As such, individuals benefiting from this change may want to re-evaluate the strategies they have in place to address the tax and liquidity issues that may no longer exist.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.
- The Wall Street Journal, December 20, 2017
- Tax Policy Center of the Urban Institute & Brookings Institution, 2017
- Kitces.com, 2017
- The tax implications of 529 College Savings Plans can vary significantly from state to state, and some plans may provide advantages and benefits exclusively for their residents. Please consult legal or tax professionals for specific information regarding your individual situation. Withdrawals from tax-advantaged education savings programs that are not used for education are subject to ordinary income taxes and may be subject to penalties.
- Businesses excluded from this deduction include those that perform services in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.