Tax Reform - How Does It Impact Me?Submitted by Blue Rock Wealth Management on March 7th, 2018
In December of 2017, the most sweeping tax reform bill in nearly three decades was passed taking effect in 2018. Most of the information in the bill relates to businesses and corporations but this post will focus on how it relates to individuals and families. Given the breadth of the reform, I strongly encourage you to consult with a tax advisor as there are many gray areas and situations can vary greatly from person to person.
Here are the biggest individual changes that I see affecting the “average” person:
- Tax bracket changes: All 7 brackets have been lowered. The highest went from almost 40% to 35%. This should be good news.
- Deductions: We currently have two choices on deductions, either a standard amount (which used to be $12,700 married filing jointly) or if higher an itemized deduction (which would include mortgage, charitable gifting, etc). The standard amount has now been raised to $24,000 for a couple. The amount you can deduct from the interest on your mortgage dropped from $ 1 million to $750,000 and there is a cap on deducting state and local taxes. All of this most likely means more and more people will use the standard deduction versus itemizing deductions.
- Home Equity Lines of Credit: People may rethink the way they are using their home equity lines. Going forward, home equity lines of credit can only be deducted if used for home acquisition. In the past, people would use home equity lines to purchase cars or other big expenses because the rates are often lower compared to other forms of borrowing and if that person itemized, they would deduct the interest. Now, this will not be deductible. There are questions surrounding refinances of existing primary mortgages. Here we are waiting for clarification from the IRS.
- Retirement Plan Contributions: The amount that can be put in a retirement for people under 50 went from $18,000 to $18,500. More people will also qualify for the Roth IRA because the income limits were raised.
- 529 college savings plan can now be used for high school or lower school up to $10,000 a year.
- Estate taxes are now exempt up to $11 million from $5 million per person. If this is still a problem for you, congratulations! Now get tax and legal advice.
- Small Business Owners will likely see the most change with the top tax rate dropping from 35% to a flat 21%.
The impact of these changes will become clear as we move further into 2018 and beyond but now is the time to begin planning for how these may impact your financial decisions. In no way do these seven points encompass the full 1,000+ page law so I urge you to get tax advice if you have not already done so.
Jennifer Johnson is a partner and Certified Financial Planner(TM) with Blue Rock Wealth Management. To hear more on this topic, list to Jennifer on the Triad Podcast Network https://soundcloud.com/user-589432337/how-new-tax-laws-may-impact-you