Taxing Times

February 2018

“The taxpayer - that's someone who works for the federal government
but doesn't have to take the civil service examination.”
- Ronald Reagan

On December 22, 2017, the 2017 Tax Cuts and Jobs Act was signed into law, and for the most part there was something for everyone (although there wasn’t any tax reform/simplification, and we need to keep a close eye on deficit spending). In our minds, a couple of the most pertinent provisions of this new tax law were the decreased personal tax brackets, the increased standard deduction, and the lower corporate tax rate. These alone could certainly keep the wind at our backs as this economy moves into the latter stages of expansion.

On the next page, we have borrowed a graph from LPL Financial that lays out many of the changes to the tax code. However, there are a few that we want to highlight, as well as some that may have not been mentioned. The first is the increased standard deduction to $12,000 for a single and $24,000 for a married couple. Although this increase was accompanied by an elimination of the personal exemption, we believe it could mean that fewer people will itemize their deductions - especially since many deductions have been reduced or eliminated altogether. Further, for those over age 70.5, it could make the Qualified Charitable Distribution, whereby you can make tax-free gifts (up to $100,000) directly from your IRA to a qualified 501(c)(3) charity, more valuable.

Second, please note that up to $10,000 (per student, per year) of 529 account distributions can now be used for elementary or secondary school tuition. However, the tax deferral benefit of 529 accounts may behoove you to leave the assets in the 529 for a longer period of time and continue to be used primarily for college expenses. Third, you will now be unable to “recharacterize” a Roth IRA conversion. Previously, you were essentially allowed a “do-over” by reversing an untimely or unprofitable Roth conversion. Moving forward, there will be no chance to reverse a Roth conversion, which means you must first make sure it is not only a smart financial strategy but also an acceptable tax maneuver as well (since a conversion typically entails income tax consequences).

Our last piece of advice is to always consult your tax professional before making any potential changes. This new tax law certainly may be beneficial to you, but it is most definitely not simpler – and thus you must ensure you understand all the potential consequences before you make a change.

We hope this helps, and please have a great end to Winter as Spring is only a few weeks away!

R. Timothy Curran, JD, CFP® Direct 704.499-9703

To see the illustration on the next page, choose the VIEW as PDF option

View as PDF