Sand Hill’s Chief Investment Officer, Brenda Vingiello, CFA, returned to CNBC’s Halftime Report on August 28, 2019 to discuss interest rates and the current stateread 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.
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