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How the new tax bill could impact your expenses?


How the new tax bill could impact your expenses? 

There have been several articles about the new Tax Cuts and Jobs Act signed in late December by Donald Trump. We are going to look at overview of the TCJA and how the changes could possibly affect some different wage earners.

December 17, 2017, Donald Trump signed the Tax Cuts and Jobs Act making some of the most significant changes in the tax code in several years. The top tier of the tax bracket has fluctuated from 94% 1944 to 28% in 1988.(https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx)

Today the highest Bracket is 37% down from 39.6% for wage earners making in excess $500,000 if filing single and $600,000 if filing Married Filing Jointly. How does it affect clients I serve? Stay tuned for a follow up piece with examples for a range of wage earners.

 Let’s start by looking at a broad overview of some of the changes;

 1.State, Local and Property taxes for individuals capped at $10,000.

 2. Standard deductions almost doubled

                                    Old                                          New

Single/MFS                  $6,350                                     $12,000

Head of Household      $9,350                                     $18,000

Married filing JT           $12,700                                   $24,000

Predictive results

  • More people will take standard deduction?
  • Fear that Charities will be hurt less charitable giving

            (By the way charitable deducts increase to 60% from 50%)

3. End of Spousal and dependent exemptions. Exemptions was $4050 as of 2017

4.Mortgage interest deduction

                                    Old                                          New

Single/MFS                  $500,000                                 $375,000*

MFJ                             $1,000,000                              $750,000*

*good till 2025

National Association of Realtor predicts a 10% decrease in home values and decrease in already limited inventory because homeowner will choose not to sell the homes to keep the deduction.(https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/)

5. End deduction for Home Equity Lines of Credit interest.

6. Casualty Losses no longer deductible for anything less than disaster.

7. Medical deduction increased by reducing the threshold to 7.5 % from 10% of AGI.

  • ending 2019

8. End of Miscellaneous. itemized deductions

  • no deduction for:
  1. tax preparation and financial services expenses
  2. unreimbursed business expenses
  3. moving expenses

9. Children’s tax credit increased to 2000 from 1400.

10. 529 savings plans for qualified higher education expenses expanded to include K-12 education up to $10,000 annually but excluding home schooling.

11. Kiddie tax increased to Trust tax rates.

12. Estate and Gift taxes basically doubled.

                                    Old                                                      New

Single                          $5.49MM                                            11MM

MFJ                             $11MM                                               22MM

13. C Corp tax rates decreased from 35% to 21%.

14. Pass-through entities get a 20% deduction of Qualified Business Income up to the threshold for Sole Proprietors, Partnerships, LLC’s, and S-Corps.

Single threshold starts at 157,500

MFJ threshold starts at $315,000

  • Rules for income greater than thresholds;
  1. The lesser of 20% of business income or 50% W-2 wages.
  2. 25% W-2 and 2.5% of unadjusted basis for property.

15. Service-based business including Health, Law, Accounting, Actuarial Sciences, Performing Arts, Consulting, Athletics and Financial Services. Get 20% deduction on QBI. Phased-out at $207,500 filing Single and $415,000 MFJ.

16. Tax Brackets Changes:

Single Filers                                                     MFJ

10%                 0 – $9,525                                                       0 - $19,050

12%                 $9,526 - $38,700                                             $19,050 - $77,400

22%                 $38,701 - $82,500                                           $77,401 - $165,000

24%                 $82,501 - $157,501                                         $165,001 - $315,000

32%                 $157,501 - $200,000                                       $315,001 - $400,000

35%                 $200,001 - $500,000                                       $400,001 - $600,000

37%                 $500,001 or more                                            $600,001 or more

 

 Tax planning suggestions to consider while planning for 2018

 For sales professionals and similar professionals look at your options for creating a business. You won’t be able to deduct expenses for home-based business or mileage (which can be one of the most significant businesses deductions).

 For clients of financial advisors’, you may want to look at paying fees through your retirement accounts so the fees aren’t taxed.

 For individuals over 70 1/2 paying RMDs, look into paying charitable contribution through your IRA to reduce your tax liability.

 This one is my favorites, parents with young kids should start a 529 plan. Being able to pay both higher education expenses and K-12 qualified expenses is a huge opportunity.

 

I will follow up with some examples shortly

 

These are just a few suggestions not meant for everyone. Seek the advice of a tax planning professional to determine if these suggestions are right for your situation. Get a good start on 2018 tax planning.

 If you would like to discuss this topic further, schedule a time to talk here

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 Chip Hill is the Founder of Chill Financial Group and wealth management firm working with Doctors and Academics.

Chip Hill, AAMS®

Financial Advisor

Voya Financial Advisors, Inc.

155 W Bell Ct

Lexington, Ky 40508

Cell: 859.948.8717

[email protected]

chillfinancialplanning.com

 

 

Information for this article was provided by the following: https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/

https://www.forbes.com/sites/kellyphillipserb/2017/12/22/what-tax-reform-means-for-small-businesses-pass-through-entities/#7ee870b86de3

http://www.cpapracticeadvisor.com/news/12388887/2018-tax-reform-law-has-benefits-for-some-small-businesses

https://www.greenbushfinancial.com/pass-income-will-taxes-2018-small-business-owners/

http://www.businessinsider.com/tax-brackets-2018-trump-tax-plan-chart-2017-12

http://www.thinkadvisor.com/2018/01/17/the-new-20-pass-through-tax-deduction-an-advisors

http://www.thinkadvisor.com/2018/01/05/new-tax-law-could-change-how-clients-invest-andy-f

 

Disclosure: I am not a certified tax planning professional. Please contact a CPA or Enrolled Agent to review your options before making any decisions