What Does the New Tax Plan Mean for Investing?

On December 22 the new tax bill was signed into law. I have received a number of calls on the this topic and I want to discuss what we know and what we don’t know.

We know that things will be changing. But the impact is still unclear. Mostly because once a bill is signed into law, the agency responsible (the IRS) has to interpret the new rules and determine how they will be implemented.

Areas of interest for savers and investors are:

The tax brackets have changed along with the standard deductions. This may result in lower tax brackets for some but higher for others. For retirees, it is important to understand how the new brackets and deductions impact your household. This will impact how much and when you should withdraw money from your qualified accounts.

The law slashes the corporate tax rate from 35% to 21% and gives business owners a 20% deduction on business income.

For taxpayers, the law nearly doubles the standard deductions to $12,000 for individuals and $24,000 for couples, which means itemizing deductions may help lower the standard tax load.[8]

The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%, which are slight decreases from previous categories. However, many workers will move into lower tax brackets under the new law. A couple making $76,000, for example, would pay 12% in income taxes as opposed to 25%.

What Does the New Plan Mean for Individual Investors?

For those of you who are still saving for retirement. Most of the 401(k) and IRA rules remain unchanged. There were some modifications to the rules regarding converting IRAs to Roth IRAs. But the real impact is yet to be determine. We are going to wait until we have a clearer picture of these new rules before recommending any IRA to Roth conversions at this time.

Capital gains tax brackets have changed. This may provide opportunities for re-positioning some assets. Again, we need to wait until the rules are interpreted before making any recommendations. This will be most helpful for those of you with highly concentrated positions which couldn’t be re-allocated because of tax cost concerns.

Those of you who make significant charitable contributions on an annual basis may want to reconsider your strategies. Under the new rules you may not have enough deductions to get the tax benefit of the donation. It has been suggested that by making two or three years of donations in a single year through the use of donor advised funds, you may be able to take advantage of the tax deduction under the new rules.

While the estate tax wasn’t eliminated, the plan raises the federal exemption from $5 million to $11 million per person and to $22 million per couple

Please keep in mind that everyone’s situation is different and it is important to consult with a competent tax advisor before making any changes to your current tax strategy.

I will continue to try and keep you up to date of the most recent developments in the coming months.

My best,