by Mary Lago, CTFA
Executive Vice President
The Tax Cuts and Jobs Act enacted on December 22, may significantly change tax planning for many of our clients. As in past years, we are providing you with a link to the College of Financial Planning’s® Guide to Annual Limits, which is a reference for 2018 for a variety of tax and other wealth planning figures. In light of the new tax act, there is a heightened need for clients to revisit their overall strategy with qualified counsel.
We manage assets for a broad range of clients who are at different stages of their lives, so we recognize that some of the information may not be pertinent to you. Below are some highlights we want to bring to your attention that may impact your portfolio:
Federal income tax brackets have changed and most individuals will be subject lower income tax rates. Of note is that the maximum federal tax rate for individuals has been reduced to 37 percent, from 39.6 percent
The State and Local Tax (SALT) deductions on federal returns are now subject to a $10,000 annual cap. The impact for many is that the combined deduction for their property taxes and state income taxes is now limited to $10,000-per-year on their federal income tax returns
New homebuyers will generally be allowed to deduct interest on the first $750,000, rather than the previous $1 million in mortgage amount. Interest on home-equity lines are no longer deductible
529 plans may now be used for up to $10,000 per year for K-12 tuition expenses, in addition to the previously allowed college expenses. Contributions are tax deductible in 30 states and deduction limits range from $500-per-year for an individual to the full amount of the contribution. While this is big news for families with children or grandchildren in private schools, individual states may adjust the deductibility or other plan rules. We can assist in establishing 529 plans and evaluating funding funds
Traditional, Roth and SEP IRA contribution limits have remained at $5,500, with an additional $1,000 make-up contribution for those over age 50. Employee contributions to 401(k)s and other similar profit sharing plans have increased to $18,500 (see retirement plans section of the College of Financial Planning’s® Guide to Annual Limits.) Employer contribution limits have also increased
Additionally, individuals over the age of 70.5 may want to consider their IRA as their first source of charitable giving
Corporate tax rates have been reduced to 21 percent. Perhaps the most widely broadcast of the changes, corporate tax rates have been significantly reduced. It is important to review your family/ business entity structures with counsel and ensure the selected structure is still the best fit for your objectives. While we expect our clients’ equity portfolios to benefit from this change due to increases in corporate profits, we do not expect many family entity structures will be advised by counsel to convert to C corporations
There are many other impacts from the Tax Cuts and Jobs Act as well as annual changes in deductions, exemptions and limits. We encourage you to meet with your team of professionals to review your overall income tax, gifting and estate planning strategies.
Ferguson Wellman provides the most value when working closely with your tax and legal counsel. We look forward to collaborating as part of your team in 2018. As always, please contact your portfolio manager if you would like assistance in creating or updating your personal wealth plan, account titles or beneficiary designations.
*Oregon estate transfer tax rate: 10 percent on taxable estates above $1,000,000 and gradually increases to 16 percent on taxable estates in excess of $9,500,000. Washington estate transfer tax rate: 10 percent on taxable estates above $2,193,000 and gradually increases to 20 percent on taxable estates in excess of $9 million. Please contact your portfolio manager or other professional partners for other state tax rates.
Any tax or estate planning information in this communication is not intended or written by Ferguson Wellman Capital Management or West Bearing Investments to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any matters addressed herein. And advice in this communication is limited to the conclusions specifically set forth herein and is based on the completeness and accuracy of the stated facts, assumptions and/or representations included. In rendering our advice, we may consider tax authorities that are subject to change, retroactively and/or prospectively, and any such changes could affect the validity of our advice. We will not update our advice for subsequent changes or modifications to the law and regulations, or to the judicial and administrative interpretations thereof.