On January 1, 2018, the most sweeping overhaul of the US tax system –the Tax Cuts and Jobs Act– went into effect. While the bill is over 500 pages long, let’s briefly examine items not changing. But please keep in mind that this summary is in no way comprehensive nor is it meant to be construed as tax advice –you should consult your advisor to determine how it might impact you personally.
First, it is important to remember that in order to make the cost of the new tax bill compliant with Senate budget rules, all of the changes affecting individuals are currently set to expire after the year 2025. At that time, if Congress has not acted to extend H.R. 1’s provision (H.R. 1 is the fancy name for the Tax Cuts and Jobs Act), then all individual tax provisions will sunset, and the tax law would revert to its current state.
Again, please remember this is not an exhaustive list, and the impact to individuals will absolutely vary. As such, it is important to consult with your advisor to determine how these changes affect your situation and which tax strategies are most appropriate for you and your family.
What is NOT changing for individual investors:
- Capital gains-There will be no changes to the current tax rates for capital gains, dividends and interest income. Additionally, the final version of the bill did not include changes to the "first-in, first-out" provision relating to the tax treatment on the sale of certain investments.
- Charitable donations remain deductible, provided an individual taxpayer itemizes. And since there is an increase in the standard deduction, it makes sense to consult your financial advisor regarding future charitable giving strategies.
- Retirement plans and IRAs-There are no changes to the retirement plan and IRA offerings available to individuals. In addition, no changes have been made to contribution limits or distribution requirements. The 401(k) tax-free contribution limits will stay at $18,000, while for those over 50, that limit is still $24,000. You should remember that the IRS announced in October that the contribution limit will increase by $500 next year for those under 50 –and this won’t change.
The point is that it’s critically important that you consult your financial advisor and tax specialist to determine how this new tax bill might impact you and your family.