With the passage of the Tax Cuts and Jobs Act in late 2017, virtually all areas of federal tax law saw sweeping changes.
The 2017 Tax Cuts and Jobs Act left many of the rules and laws pertaining to retirement planning unchanged. However, the Act did change the tax landscape for many by lowering overall tax rates for individuals and businesses and changing deductions. Given this new landscape, there are additional opportunities and new twists for taxpayers to be mindful of in order to take full advantage of planning for retirement in the most tax-efficient manner.
The Tax Cuts and Jobs Act of 2017 created a new tax incentive, the Qualified Opportunity Fund (QOF), designed to encourage long-term investment in low income communities.
Is philanthropy one of your top priorities? One way to make your estate plan more philanthropic is through a Charitable Remainder Trust (sometimes called a CRT, CRUT, or CRAT, depending on the form it takes). The Trust is created until the end of the trust term or the death of the last beneficiary. At the end of the trust, whatever is left over (the “remainder") is distributed to the charity of your choice. Other advantages of creating a CRT include providing an income stream, enabling an immediate charitable deduction, and reducing federal estate tax liability.
In a summary of the tax law signed on December 22, 2017, there are still seven individual tax brackets, but the top rate was lowered from 39.6% to 37%. Most of the law's provisions became effective on January 1, 2018, with numerous provisions expiring after 2025. Like most tax laws, it is neither positive nor negative in and of itself; rather, its effects will vary according to taxpayers' individual circumstances. The bill includes both personal and corporate tax changes, including key provisions applicable to high-net-worth individuals.
Reviewing the changes to the Tax Reform law from the lens of tax-efficient giving, it's clear it created some philanthropic winners and losers for the next few years. With the elimination of the phase-out of itemized deductions, donors who itemize can take advantage of the full amount of their charitable gifts, subject to Adjusted Gross Income limits. For donors who can no longer itemize, there are several good strategies to mitigate the loss of the deduction, including the use of IRAs, donor advised funds, and gifts of appreciated property.
Taxpayers who have identified opportunities to take advantage of the increased gift tax exemption before 2026, but have been hesitant to do so because of the risk of clawback, now find themselves on firmer ground for moving forward with those plans. However, with all of the ways and means of using the exemption, what should they do ... and why? We consider some ways and means of using it.
The new year brings new tax-savings opportunities, including larger tax exemptions and exclusions. Here are some strategies and tips to consider in your tax planning this year, as well as the Federal Estate and Gift Tax Exemption/Exclusion Levels for Individuals and 2019 Federal Income Tax Brackets charts.
After looking at the potential pitfalls in Part 1 of this multipart series on the Tax Cuts and Jobs Act of 2017, we turn to Part 2: the Income Tax Opportunities. Regardless of your net worth, the temporary increase in the federal tax exemption has made possible certain strategies that could significantly reduce capital gains tax and allow for rebalancing portfolios on a tax-free basis.
Investments into qualified Opportunity Zone Funds offer attractive tax benefits, while catalyzing capital inflows into economically distressed communities. However, prudence is necessary in evaluating these investment opportunities as they come to market.