Below is a quick summary of some of the provisions of the new tax plan and how it may affect you moving forward:
Individual Income Tax Provisions
- Seven income tax brackets – 10%, 12%, 22%, 24%, 32%, 35%, 37%; top bracket begins at $600,000 for joint returns, $500,000 for singles and heads of households. Married filing separately top rate begins at $300,000. Effective through 2025. Initially may reduce income taxes for most Americans but projections are that if Congress does not extend the tax rates after 2025, it will cost tax increase for most individuals.
- Standard deduction is increased to $12,000 for single returns and $24,000 for joint returns. Effective through 2025. This would significantly reduce the number of Americans who itemize deductions. It will also eliminate the benefit of deductions for mortgage interest and charitable contributions for those who don’t itemize.
- Capital gains rates have not changed.
- Mortgage interest deduction is allowed for acquisition debt up to $750,000; repeals deduction for interest on home equity debt. Applies through 2025 to debt incurred on or after December 15, 2017.
- The child credit is increased to $2000 with $1400 refundable; being phased out beginning at $200,000 of income for single filers and $400,000 for joint filers. This may reduce the tax for qualifying families with children or other dependents.
- For AMT-increased exemption amounts and phase-out ranges for exemption amounts through 2025. This will reduce number of taxpayers who will be subject to the AMT.
- Medical expenses are deductible to the extent they exceed 7.5% of AGI. This will apply to 2017 retroactively and 2018 only. This will allow more people to claim medical expense deductions and increases the deduction for those already claiming it.
- For section 529 plans, the new law will allow up to $10,000 of accounts to be used for K-12 tuition and related expenses annually in addition to post-secondary expenses. This will allow for greater flexibility to utilize funds for other qualified education expenses.
- Deductible cash contributions to public charities are now limited to 60% of the taxpayers AGI effective through 2025.
- ABLE account contributions cannot exceed the gift tax annual exclusion amount ($15,000 for 2018). The able account beneficiary may also contribute the lesser of (1) the federal poverty line for a one-person household; or (2) the beneficiary’s compensation for the year.
Estate, Gift, and GST Provisions; Trust and Estate Income Tax Rates
- The estate tax exemption is doubled to $11.2 million for 2018 which will significantly reduce the number of estates subject to the estate tax and provides greater opportunity for lifetime planning.
- The generation-skipping transfer tax is also doubled to a $11.2 million exemption for 2018 which will allow the passing of wealth to younger generations.
- The maximum rate for the estate tax remains at 40%.
- There are 4 income tax brackets now for trust income – 10%, 24%, 35%, 37%, with the top bracket beginning at $12,500 in income. Compare this to the top bracket for individual filers beginning at $500,000 and for joint filers beginning at $600,000. Be cautious on how your trusts are established.
For a more in-depth analysis of your overall estate plan, please feel free to contact one of our attorneys at Bratton Scott, 856-857-600