On Friday, December 22, 2017, President Donald Trump signed a new tax bill, formally named the “Tax Cuts and Jobs Act of 2017“. The 500-page long document covers many, many aspects of taxation and the economy. Realizing that our clients and blog readers are not interested in learning all the thousands and thousands of details, however, over the coming weeks and months we will be writing about the little ways in which this big change in the tax law is likely to affect your estate and healthcare planning.
Let’s begin with federal estate taxes.
The 2017 federal estate-tax exemption thresholds are $5.49 million for individuals and $10.98 million for married couples. If you die with assets worth less than those amounts, you don’t owe any estate tax. On January 1, 2018 these thresholds doubled to $11.2 million for individuals and $22.4 million for couples. These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. The highest marginal federal estate and gift tax rates will remain at 40% and the GST tax rate will remain a flat 40%. For some Geyer Law clients, this will lessen the need for tax planning, and estate planning documents should be reviewed to remove outdated tax language.
New opportunities in education planning.
529 plans, also known as “qualified tuition plans”, have been expanded. In addition to using them to fund college expenses, parents may now use them to pay for K-12 education tuition and related educational materials and tutoring. What’s not new, but very beneficial, is that 529 contributions grow tax free and can be withdrawn tax free as long as the money is used for “qualified educational expenses”. What’s more, the IRS allows you to “front load” a 529 plan with an amount equal to five years’ worth of annual gift tax exclusions ($75,000 in 2018); the annual gift tax exclusion is $15,000 in 2018) with no gift tax consequences.
Planning opportunities for business owners.
Owners of closely-held businesses have special needs, yet are often too busy developing their business to address the legal issues necessary to ensure their continued success. At Geyer Law, we advise clients on critical business planning issues, and the new tax code provides several new planning opportunities. Our clients who are independent contractors and small business owners, for example, will now benefit from a pass-through deduction of 20% business income, while both pass-through and corporate business owners will be able to write off 100% of the cost of capital expenses for five years.
For 2018-2015, the limit on the deduction for cash donations to charities is raised from 50% to 60% of Adjusted Gross Income. The increased deduction can serve as an important benefit to be considered in the in-depth charitable planning counseling we offer our clients.
Continue to follow this blog over the coming weeks and month, as we continue to offer insights into the effects of the new tax law on estate and healthcare planning.