The new tax law leaves the investment world mostly untouched and perhaps better positioned to take advantage of a rosier and potentially more robust marketplace.
Favorable rules for 401(k)s, IRAs, and other retirement accounts remain intact.
The law, however, prohibits taxpayers from reversing Roth IRA conversions for a certain amount of time, which were used by account holders if investment values declined. Americans don't have to pay income taxes on Roth IRA withdrawals.
Although the estate tax wasn't eliminated, the plan raises the federal exemption from $5 million to $11 million per person and to $22 million per couple.
The plan also boosts the alternative minimum tax (AMT) from $50,600 to $70,300 for individuals and from $78,750 to $109,400 for married couples filing jointly. The AMT's aim was to prevent high earners from skirting full income tax payments by increasing the number of deductions. The AMT, a mandatory alternative to the standard income tax, takes effect when taxpayers' income reaches certain levels.
Sole-proprietorships, partnerships, and S-corporations would pay taxes at individual rates, but be allowed to use the 20% income deduction. This provision would not apply to high earners making more than $315,000 and filing jointly as couples.
What Should I Do Now?
Take a look at previous years' tax filings to determine the differences in your tax situation. If it appears your tax rate may drop or your ability to itemize changes, you may want to consider making changes to future contributions-such as charitable donations-or deductions, which may include medical expenses.
Retirees will benefit from the increase in the standard deductions for charity. To gain the most advantage, experts suggest doubling donation sizes but give less frequently. For example, by giving more in a single year and then skipping the next year, taxpayers would have a higher amount to write off on their taxes. Financial professionals also point to donor-advised funds rather than donating cash.
Retirees will also have to monitor their income (withdrawals from their retirement accounts, which are taxable) to avoid moving into a higher tax bracket.
Retirees approaching 70½ in 2018 may want to start taking early distributions if they have high balances in their retirement accounts to avoid landing in higher tax brackets.
We hope you found this report useful. We strive to keep you abreast of the most recent developments in the financial industry. If you have questions, call us anytime.