How to Succeed Under the New Tax Reform – Replay

It may not be tax season but that doesn’t mean you can’t start preparing for next season right now. Especially with 2018 taxes being the first year under the Tax Cuts and Jobs Act (TCJA), there are plenty of changes that could leave you paying a higher tax bill if you don’t plan early.

The 2018 tax reform is the first major overhaul to the United States tax code in over thirty years. You can imagine that has left taxpayers and tax preparers alike busy trying to figure out what kind of short-term and long-term impact the new tax laws will have.

You don’t have to wait until you’re ready to file your individual tax returns to find out how TCJA will affect you personally. Here a rundown of what has changed, stayed the same, and what you can do (now) to succeed under the new tax reform.

Watch the replay of our 2018 Tax Reform Update right here!

What Has Changed Under the New Tax Reform

  • Standard Deductions Increased For 2018, the standard deduction amount has been increased for all filers, and the amounts are as follows: Single or Married Filing Separately—$12,000; Married Filing Jointly or Qualifying Widow(er)—$24,000; Head of Household—$18,000.
  • State and Local Tax Limitations (SALT) Homeowners in high-tax states lose their ability to fully deduct state and local taxes (SALT).The SALT deduction is capped to a maximum of $10,000 (or $5,000 for married couples filing separate returns). Residents of California, Illinois, Maryland, Massachusetts, New Jersey, New York, and Connecticut will feel this change most acutely.
  • Child Tax Credit Doubled The child tax credit doubles to $2,000 per child, and you may be eligible for this refundable credit. The child tax credit was originally designed to help working families with the costs of raising their children. The credit won’t phase out until a single filer’s income is $200,000 or $400,000 for married couples filing jointly. This change in the phase out limit will allow more middle and upper income families to claim the credit.
  • Mortgage Interest Rate Deductions Decreased Existing mortgages are grandfathered to the extent of the original amount of the loan (but not over $1 million), and should not be increased in a refinance if it exceeds the $750,000 limit. If the new debt is over $750,000 the additional mortgage interest will not be deductible. Another major change is that home equity loan interest is not deductible, unless it is used in connection with home acquisition or improvement.
  • Alternative Minimum Tax (AMT) Increased The act increases the exemption amount so fewer taxpayers are subject to the AMT. The increased standard deduction means many households won’t itemize deductions AND won’t get hit with the AMT. That will mean more money in pockets of high earners. And those who still owe AMT may end up owing less than previous years.
  • Lowered corporate tax rates Top corporate tax rate starting in 2018 is just 21%, when last year it was 39.6%. The U.S. has had some of the highest corporate taxes in the world. Now, corporate taxes will be the lowest since 1939. Corporate AMT is eliminated.
  • Pass through income will be taxed differently Prior to the new tax law, small business owners usually paid taxes based on their individual tax rates up to 39.6%. Now, owners will be allowed to take a 20% deduction for qualified business income and these individuals will only be taxed on 80% of their pass-through income.

What Has Stayed the Same Under the New Tax Reform

And while a couple items stay the same, there are still some modifications worth noting.

  • 7 Tax Brackets (but reduced the rates) For 2018, there are seven tax brackets from 10% to 37% (where previously the highest income tax bracket was 39.6%) and 0 to 20% brackets on capital gains.
  • Estate taxes remain (but exemption levels doubled) The Tax Act doesn’t quite go as far as eliminating estate tax, but it does double the unified estate and gift tax exemption amounts from their current levels, which raises the scheduled 2018 exemption of $5.6M into an $11.2M individual estate tax exemption and a $22.4M exemption for married couples if you pass away after December 31, 2017. Step-up in basis remains, as does the top 40% tax rate on gifts and estates, as well as the existing rules on generation skipping taxes.

8 Steps You Can Take (Now) to Succeed Under the New Tax Reform

Given the sweeping changes in the tax laws, here is what you can do now to start preparing for your 2018 taxes and beyond.

  • Check Your Withholding Amounts New tax tables reflect the repeal of personal exemptions, changes in tax brackets, and the increase in the standard deduction. Be sure you’re having the right amount withheld, especially if you purposefully plan for a refund each year. The IRS believes there will be further changes to the tables in 2019.
  • Re-Examine Wills, Trusts, and Estate Plans Be sure to check your wills and trusts with your estate planning attorney to see whether their formulas are still applicable or need to be changed.
  • Plan Before Exercising Stock Options Certain actions, like exercising stock options, may trigger AMT. So, it may be a good idea to talk with your accountant and financial advisor about delaying the exercise of any stock options, to avoid increasing your tax bill, and therefore being subject to the AMT.
  • Review 529 Plan Options to Meet Your Family’s Education Needs Your 529 plan can now pay for K-12 tuition, too. Now 529 plans are no longer limited to post-secondary education, allowing a $10,000 annual distribution to pay for K-12 private or parochial school. Most states offer these plans. Because California doesn’t offer tax benefits on contributions, as a resident of California, you can use any state’s plan—you should just use the best plan you can find.
  • Incur More Out-of-Pocket Medical Expenses in 2018 Only (if you can) Every dollar spent on out-of-pocket health care beyond 7.5% of the Adjusted Gross Income, or AGI, is deducted at the individual’s tax rate. In 2018, the floor to deduct medical expenses for an AGI of $50,000 is $3,750.  That floor will be increasing to 10% in 2019. After 2018, the limit for deducting medical and dental expenses goes back to 10% of AGI, so, if it makes sense for you, incur those medical expenses this year.
  • Take the Standard Deduction in One Year and then Itemize Your “Bunched” Deductions the Next Year This entails prepaying such things as real estate taxes, mortgage payments, medical expenses, student loans, and future charitable contributions. This strategy will enable you to take advantage of the higher itemized deductions in alternate years. Of course, you will need to write a check for these expenses! Consult your accountant before acting.
  • Make Smaller Roth IRA Conversions Over Several Tax Years Making smaller conversions over different tax years will eliminate doing a large conversion in one year and the difficulties connected with tight cash flow near the tax filing date, or if the market pulls back, decreasing the value of the account.
  • Design a Plan to Meet Your Life Goals Your future is too important to play games with and take unnecessary chances. Know what you’re building toward. Seek professional help from your financial advisor and tax advisor. Ensure that you understand how all the new rules impact you. Start building your tax and investment review plan now. Ensure that your taxable investments are tax efficient.


The new tax changes affect everyone. How they affect you depends on many factors pertaining to your overall financial situation and state of residence. Because everyone’s tax situation is different, make time to discuss your taxes and portfolio with both your financial advisor and your tax preparer.

Starting to prepare now means you can craft a tax-efficient strategy to help offset any new tax exposure. And really, proactive planning when it comes to your money is one of the best ways to plan for financial success.

Be sure to watch the replay of the online webinar on this topic to get even more information and detail on ways you can succeed under the new tax reform. Click here to watch the replay.