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HOW MIGHT MY FINANCIAL PLAN BE AFFECTED BY THE NEW TAX BILL

HOW MIGHT MY FINANCIAL PLAN BE AFFECTED BY THE NEW TAX BILL

January 03, 2018
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This post isn’t going to be a compendium of the tax bill; my hope is that it looks a lot more like a CliffsNotes version of what is a reasonably large and involved change in the tax code. If you want to read something more comprehensive, multiple of the footnotes will be to articles that go into greater detail on the changes. Also, if you want to read more details on the new tax bill, you should make a New Year’s Resolution to have more fun in 2018. That being said, I just want to touch on a few of the items in the bill that we think are likely to impact a large percentage of our clients’ financial plans – I hope your feelings aren’t hurt if I leave out a part of the bill that impacts you.

Let’s start with a couple of the most obvious changes that will impact literally everyone. The bill keeps the same number of tax brackets, but changes the income and marginal tax rates on said brackets.[1] It has also been widely reported that the standard deduction has been doubled, which is true, but that comes with a caveat – the elimination of the personal exemption.[2] How this impacts you depends on a lot of things, a married couple with no children who already uses the standard deduction, for example, could see a large benefit, while a married couple with children may benefit differently depending on their marginal tax rate and the applicability of the new, larger child tax credit, which is now partially refundable.[3]

The smaller marginal rates and increased standard deduction have some companions in restricted deductibility of certain items. Among the most notable of these is limiting the amount of SALT (State and Local Taxes), sales and property taxes that may be deducted in a given year. Those will now be capped at $10,000 a year for those who itemize, which will obviously have a disproportionate impact on states with relatively high income and property taxes (a category into which Nebraska falls). Such limitations, when combined with the increased standard deduction will likely lead to the vast majority – with some estimates as high as 94% - of individuals and families taking the standard deduction.[4]

Although charitable deductions weren’t touched as had been rumored from time to time, this does increase the barrier to deductibility for itemizing for many people and could make it so that people attempt, to a greater degree than before, to lump potential deductions in certain years, allowing them to itemize, then take the standard deduction in subsequent years. It may also increase the use of such vehicles as Donor-Advised funds, where contributions can be documented and full deductions taken in one year, while proceeds are actually paid out over a number of years.[5] In addition, for those who are over 70.5, it affects the Qualified Charitable Distribution, a tool that we speak to all clients about if they have reached the age where they take required minimum distributions.[6]

Another issue of great importance to our clients, capital gains taxes, will not be impacted by the new bill and, in fact, in a peculiar twist, will actually be based off of old tax brackets. The continuation of the current capital gains tax structure allows for multiple planning opportunities.[7]

Many of the rumored changes to retirement plan contribution limits, student loan interest deductions, and other popular items like flex spending accounts were not altered by the bill.

The bill also impacts pass throughs (S Corps, LLCs, etc.), estate taxes, corporate taxes and myriad other issues that may affect you, so be sure to spend some quality time with your CPA and financial advisor this year discussing what steps you may be able to take in order to benefit from the new bill. [8][9][10]

If you didn’t enjoy reading this, I’m sorry. If you did enjoy reading this, well, I’m sorry about that, too. Either way, I hope it was helpful.


This information is provided for educational purposes only, is not intended to provide specific legal, tax or other professional advice and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or financial services professional. All information presented is believed to be accurate. Concepts presented may not be suitable for every situation.  LPL Financial does not offer tax advice.


[1] https://www.fool.com/taxes/2017/12/13/your-guide-to-tax-brackets-in-2018.aspx

[2] https://www.cnbc.com/2017/12/20/families-will-feel-the-pain-of-losing-this-tax-break.html

[3] https://www.forbes.com/sites/kellyphillipserb/2017/12/21/how-will-the-expanded-child-tax-credit-look-after-tax-reform/#79e12f5f4205

[4] https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

[5] https://www.nptrust.org/what-is-a-donor-advised-fund

[6] http://www.kampymachteam.wrfa.com/Qualified-Charitable-Distributions.9.htm

[7] http://www.kampymachteam.wrfa.com/blog.cfm?ID=119

[8]https://www.nytimes.com/2017/12/22/reader-center/ron-lieber-how-will-this-tax-bill-affect-you.html

[9] https://www.nytimes.com/interactive/2017/12/22/business/taxbillroundup.html

[10] https://www.irs.gov/pub/irs-soi/ninetyestate.pdf