In the above video from CNBC’s Halftime Report, Sand Hill Chief Investment Officer, Brenda Vingiello, CFA discusses how to approach the market volatility. You areread more
What’s Next? Opportunities for Planning in the Tax Cuts and Jobs Act of 2017
The “Tax Cuts and Jobs Act of 2017” (TCJA) was signed into law on December 22nd and, while it will take some time to fully absorb its many impactful provisions, some key areas for planning clearly exist in this New Year. Probably the most significant change for many private taxpayers is the substantial expansion of the amount of Lifetime Exemption of gift and estate tax and generation-skipping tax. The new exemption amount essentially doubles, increasing to $11.2 million per person, or $22.4 million for married couples, in 2018. These increases are temporary and due to expire on December 31, 2025, with changes conceivably arriving sooner at the hands of a different Congress.
Separately, the normal annual gift tax exclusion amount increases to $15,000, up from $14,000, and married couples can combine their gifts to now give away up to $30,000 to an unlimited number of recipients without affecting the above-mentioned Lifetime Exemption amount. Obviously, these changes may provide opportunities for additional multi-generational gifting strategies. Keep in mind, though, that lifetime gifts, unlike transfers at death, aren’t entitled to stepped-up basis.
Unfortunately, the Alternative Minimum Tax (AMT) stays for individuals, but it will affect fewer taxpayers beginning in 2018, with the exemption amount increasing to $109,400 for married couples ($54,700 for individuals) and the phase-out of this exemption rising substantially to $1 million for joint filers ($500,000 for individuals).
The deduction for medical expenses was also enhanced, but again only temporarily for two years. The threshold for deducting such unreimbursed expenses is reduced from 10% of adjusted gross income (AGI) to 7.5% for all taxpayers for both regular and AMT purposes in 2017 and 2018. Because of the short sunset on this provision, if applicable, you may want to bunch all eligible expenses into 2018 to the extent possible to maximize this deduction.
Charitable giving was also mostly untouched, but interestingly, the limit for cash donations now increases to 60% of AGI (up from 50% previously), allowing one to possibly justify larger charitable cash donations.
Another nice improvement is with 529 plans, allowing families to now use these resources for primary and high school expenses, rather than just college and post-graduate education. These plans enable contributions to grow and come out tax-free if properly used for such educational costs, and this new feature will likely make them more popular and worth another look. Plus, importantly, this new change is permanent.
There are also a number of important existing tax breaks that remain, including:
- Principal residence gain exclusion
- Exclusion for employer-provided adoption assistance
- Lifetime learning credit
- Deduction for student loan interest
- Deduction for graduate student tuition waivers
Some of these and other deductions require itemization to be eligible, and given the new higher standard deductions now in place, your CPA can guide you to the best strategy and implementation for your personal situation.
Finally, while there will be a further reduction in the number of taxable estates due to the changes described above, there will still be plenty of other important estate planning considerations in the areas of non-tax issues such as asset protection, guardianship of minor children, family business succession, and planning for loved ones with special needs. It will thus probably be sensible to review your ongoing circumstances with your CPA, estate planning attorney, and Wealth Manager to make sure you have the proper planning in place for the coming years, given these recent substantial changes to tax legislation.
Articles and Commentary Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA. Video Presentations All video presentations discuss certain investment products and/or securities and is being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect SHGA's or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.