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The (Constantly) Changing Tax Landscape – Part II

The (Constantly) Changing Tax Landscape – Part II

| February 22, 2018

Last week I did a blog post about the new tax law (Tax Cuts and Jobs Act of 2017) and its effects on personal income tax returns.  Today we will turn our attention to other aspects of H.R.1 as it impacts retirement plans, businesses, investments, and estates.

Beginning in 2019, the penalties for not having adequate health insurance have been eliminated.

Roth IRA conversion reversals (recharacterizations) are no longer allowed.  A taxpayer can still recharacterize Roth IRA contributions.

Some investment-related provisions that did not change:

  • Long-term capital gain and qualified dividend tax rates will remain at 0%, 15%, and 20%, depending on your tax bracket.
  • The 3.8% net investment income tax will remain in effect for high-income taxpayers.
  • The specific lot method may still be used for selling shares of stock as the proposed “first-in first-out” rule did not make it into the law.

The elective contribution limit for 401(k) has been raised to $18,500 from the current $18,000.  For those over age 50, the catch-up contribution remains at $6,000.  For a Simplified Employee Pension (SEP), the maximum effective contribution limit is the lesser of 25 percent of compensation or $55,000.  The contribution limit to a Savings Incentive Plan for Employees (SIMPLE) is $12,500 plus $3,000 for those age 50.

Section 1031 exchanges are limited to real property that is not held primarily for sale; personal property is no longer eligible for exchange.

The annual gift exclusion is increasing from $14,000 to $15,000 for gifts made per recipient.  The adjusted gross income limit in 2018 that permits a full Roth contribution for joint filers is adjusted gross income of less than $189,000, with a full phase out at $199,000.

The estate and gift tax unified credit of $5.49 million per individual will be increased to $11.2 million per individual starting in 2018.  This will be adjusted annually for inflation and is effective for decedents dying and gifts made after 2017 and before 2026.

On the corporate side, the current maximum tax of 35 percent for C corporations has been reduced to a maximum rate of 21 percent.  This is a permanent change.

The Corporate Alternative Minimum Tax (AMT) has been eliminated.  This is also a permanent change.

A new code, Section 199A, was enacted.  Under it, pass-through tax treatment of partnerships, S Corporations and sole proprietorships now have a new 20 percent deduction for non-wage domestic, qualified business income until December 31, 2025.  This is now considered business income rather than investment income.

Well, there you have our take on the most pertinent aspects of the new Tax Law that would affect our clients.  As always, if you have any questions, please do not hesitate to give us a call.

Until next time, cheers!