Tax Cuts and Job Acts – Spring 2018

Hello from Sycamore,

There are tax law changes that went into effect on 01/01/2018 and are set to expire on 12/31/2025. Sycamore, although not tax professionals, would like to point out some items that could have material affects to you. Below are some of the changes that may impact you – please consult a tax professional for advice and confirmation:

INCOME TAX BRACKETS: Federal income tax brackets were changed and most were reduced. While capital gains tax rates have remained the same, the brackets have increased slightly.

HOME OWNERS: If you own a home in a high-tax area of the United States you may be affected under the new law by a $10,000 limit on how much state and local tax (including property taxes) you will be able to deduct from your federal income tax. Home-equity loan interest will NOT be deductible under new tax law, whether you itemize or not.

529 SAVINGS PLANS: You may use funds of up to $10,000 a year from 529 accounts to pay for k-12 expenses at private institutions under the new law. The funds cannot be used for home schooling expenses.

YOU TYPICALLY FILE AN ITEMIZED RETURN: The standard deduction has increased from $6,350 to $12,000 for single tax payers, $9,350 to $18,000 for head of household filers, and $12,700 to $24,000 for married couples filing a joint return. If you are age 65 or over, blind or disabled, you can tack on $1,300 per married taxpayer to your standard deduction ($1,600 for unmarried taxpayers) Claiming personal exemptions has been one way to reduce your taxable income. Under 2017 laws the exemption amount was $4,050 each for individual, spouse, and dependent. Under the 2018 tax laws, the personal exemptions have been eliminated. Here are a couple examples:

1. Single – No Children

a. Standard deduction increases from $6,350 to $12,000
b. Personal exemption decreases from $4,050 to $0
c. Old tax break: $10,400 vs. New tax break: $12,000

2. Married Filing Jointly – Two Children

a. Standard deduction increases from $12,700 to $24,000
b. Personal exemptions decrease from $16,200 to $0
c. Old tax break: $28,900 vs. New tax break: $24,000
(https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/, 2018. Amy Fontinelle)

Under 2018 law, the deduction labeled as Miscellaneous Deduction which allowed tax payers to deduct expenses such as tax preparation, investment fees, and unreimbursed employment expenses has been eliminated.

ESTATE TAXES: The amount of your estate that will be tax free has doubled through year end of 2025 when the change is set to expire. Under 2017 laws the tax-free limit was $5.49 million for individuals and $10.98 million for married couples, the new limits are $10.98 million and $21.96 million, respectively.

INVESTORS: Under new law, the maximum corporate tax rate is 21% compared to a 2017 maximum rate of 35%. It has been nearly 30 years since corporate tax rates have been reduced under president Ronald Reagan. While we are not sure of what the outcome of the reductions will be, it would be likely to see potentially higher dividend rates, more competitive product pricing to place pressure on competitors, and expansion of business operations.

Thanks for your business and trust,

Craig Smith
Sycamore Financial Group