Opportunities Under the 2018 Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) that went into effect on January 1, 2018 had monumental changes to business taxation, especially as it relates to pass-through businesses. It also resulted in huge increases in estate, gift, and generation skipping transfer tax exemptions. What opportunities does the Act offer to you and your loved ones, or your business?

Federal Estate Tax Exemption Doubled

With the Tax Cuts and Jobs Act, the federal estate tax and GST tax exemption doubled on January 1, 2018, to $11 million per person or $22 million per couple. [Note that the Massachusetts estate tax exemption remains intact at $1 million per person.]

The doubling of the federal estate, gift, and GST tax exemptions opens a significant, once-in-a-lifetime opportunity for those with significantly large estates to protect more assets than ever.

As this increased exemption expires on December 31, 2025, people may be tempted to wait, but remember that this tax legislation is likely to be heavily modified if the political pendulum swings in the other direction.

Socius has tools that can build flexibility into your plan, including trust protectors, decanting powers, and other strategies to deal with future changes. But those future strategies only work to preserve options if we implement plans while the exemption is available.

Changes to Individual Income Taxes

The new cap on state and local tax deductions may mean that you may need to consider a special income-tax saving trust, called a non-grantor trust. If you have a business, an asset, stock, or anything else that has substantially appreciated in value that you’re considering selling, a non-grantor trust would likely benefit you.

The Tax Cuts and Jobs Act provides no reduction in personal capital gains rates (which remain 20% for most assets and taxpayers) and no repeal of the 3.8% net investment income tax. Charitable planning remains an excellent option to help reduce these taxes. If you are considering making a significant charitable gift, a charitable remainder trust, lead trust, private foundation, or other strategy may be an excellent option to save income and estate taxes while benefiting a cause you care about.

The increase in the standard deduction ($12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly) and removal of some above-the-line deductions (e.g., moving expenses and alimony) may help save you some time at tax-time.

TCJA does retain the deductions for 529 plans, IRAs, 401(k)s, and Health Savings Accounts (HSAs), offering you several opportunities to reduce your taxes while building financial security for the future if you choose to save and invest some of the tax savings.

Significant Changes to Business Taxation

With the Tax Cuts and Jobs Act, owners of pass-through companies and sole proprietors will be taxed at their individual tax rates less a 20% deduction. If you own a business and are relying on old rules of thumb or ignoring this monumental change in business taxation as you make business plans, you may end up paying enormous amounts of unnecessary taxes. In addition, many of the new, business-oriented deductions have specific rules to qualify

If you own a business or are thinking about starting one, contact Socius Law Firm so we can analyze how to maximize your benefits under the Act.

Final Considerations

Planning to minimize income taxes is a balancing act. Socius Law Firm is available to answer your questions about tax reform and work with you to take full advantage of the opportunities. Most important, we’ll ensure that anything we do to help you take advantage of tax reform still achieves your overall planning goals and not just your tax-saving goals. Contact us today at 508-870-5759 to discuss your opportunities.

By Todd Rosenfield

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Posted in: Business Formation & CounselingBusiness LawEstate Planning

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