Legally Speaking: New Tax Laws
The Tax Cuts and Jobs Act passed recently is perhaps the most significant change in tax law in 30 years. There are several significant changes that may affect your Estate & Financial Planning:
Estate Taxes
Starting January 1, 2018, the Estate, Gift, and Generation-Skipping Transfer (GST) tax exemptions double from $5 million to $10 million. For 2018, the exemption is $11.2 million per person, or $22.4 million for a married couple, adjusted for inflation. The higher exemptions are here until 2025, at which time they drop back to $5 million (indexed for inflation).
There are significant opportunities to remove assets from estates and permanently exempt future appreciation from these taxes. Tax-planning is appropriate for those with considerable wealth, where more complex irrevocable trust strategies should be considered.
For the other 99.7% of us, an Estate Plan review is still in order to ensure any “old” tax-driven language still meets your goals, without creating unnecessary burdens that outdated tax-planning trust provisions can create.
Tax planning is only one piece of Estate Planning. Incapacity issues, protecting financially imprudent heirs, asset protection, avoiding probate, and minimizing income taxes are all valid and relevant goals to be achieved with proper Estate Planning, regardless of the new Estate tax exemptions.
Individual Taxation
We keep a seven-bracket rate structure but income levels and rates for each bracket change. The standard deduction has increased from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. The personal exemption deduction is gone.
Long-term capital gains rate remains at 20 percent, and net investment income tax rate remains at 3.8 percent.
Pass-Through Business Changes
For business-owners, pass-through business taxation of sole proprietorship, partnerships, S corporations, and LLCs has been dramatically changed. There is a 20% deduction for most pass-through businesses, reducing the top tax rate from 37% to 29.6%. Owners of health, law, consulting, athletics, and financial services, are subject to income limitations. High-income earners engaging in these categories will not receive the 20 percent deduction.
The reduction in the C-Corporation rate from up to 35 percent to a flat 21 percent makes a C-Corp a potentially attractive option for those starting a business, provided double taxation is accounted for.
Putting It All Together
The new law may have a significant effect on your family and will undoubtedly reveal numerous opportunities as we learn more.
Consult with your local financial and legal advisors to ensure you are taking advantage of these changes, in your quest to…
Leave a Legacy, Not a Burden!
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