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The contents of this webpage should not be construed as tax advice. Please contact your tax professional.
The passage of the Tax Cuts and Jobs Act (TCJA) of 2017 affects most Americans, regardless of what their taxable incomes are. Although tax jargon may be difficult to decipher, knowing some of the basic changes may help you prepare for filing your income tax returns. This article provides an overview of the important details in the new tax law.
2018 marks the first full year these changes are in effect. As you prepare to file your income tax returns, you likely have many questions.
Most companies (including corporations) and individuals are subject to income taxes. We won’t go into every detail regarding the new law; rather we will look at it from a big-picture perspective. If you want information specific to your situation, please talk with your tax advisor.
Individual Tax Changes
Source: Internal Revenue Service, Tax Foundation, as of 01/08/2018. The Tax Foundations an independent, nonprofit organization that collects tax policy data and publishes the findings in various research studies.
Personal Income Tax Deductions. The standard deduction may reduce your income tax and could vary depending on your filing status. The standard deduction under the new law has almost doubled, to $12,000 for single filers and $24,000 for joint filers.[ii]
Estate and Gift Tax Changes. The exemption for estate tax, or tax on inherited money, has increased. The new tax rules nearly double the previous federal estate tax exclusion.[iii]
Individual Alternative Minimum Tax (AMT) Changes. The AMT is an additional tax for people with deductions that are considered preferential and it was designed for high-income taxpayers. It still exists under the new tax law but the exemption has increased.
Some things haven’t changed. For example, long-term capital gains rates weren’t touched by the TCJA, and short-term capital gains continue to be taxed at your ordinary income tax rate.
People often dislike change. Some investors may look for ways to take advantage of the new laws by moving to a new state or making some other large changes. But given that the tax changes are set to expire and Congress has the ability to enact a new tax reform, it may not make sense to make any big life changes based on the new tax law.
We don’t see the tax changes having much or any impact on long-term stock returns. Stocks move primarily on the difference between expectations and reality. Given the time it takes to roll out a new tax plan and markets price in all widely known information, you are likely better off sticking with a retirement portfolio best suited to meet your long-term financial goals.
You may be best off consulting with a tax advisor to understand how the changes may affect your specific situation. A tax advisor can help you plan and pinpoint potential ways to optimize your filing when it comes to your tax rate, capital gains tax and overall investment income taxation.
Consulting with a tax advisor is the first step to understanding how the changes will impact you. However, it can be difficult to know the right questions to ask, here are some questions to ask:
Building an optimal investment strategy is no easy task. Finding a strategy where your tax and investment goals work together is key for reaching your long-term financial goals. If you would like to learn more about how Fisher Investments can help out, call to speak with one of our qualified professionals today.
[i] Source: Internal Revenue Service (IRS), as of 03/08/2019. www.irs.gov/newsroom/individuals
[ii] Source: Internal Revenue Service (IRS), Tax Foundation, as of 01/08/2018
[iii] Source: Internal Revenue Service (IRS), as of 01/08/2018