Public Service Announcement: Tax-reform Critical Information

“An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”

The good news: Tax reform is good for you.

The bad news: How good, ultimately depends largely on you.

Leveraging the tax reform for your ultimate benefit is a nuanced and layered undertaking. Financial, legal and business finance professionals must coordinate a unified strategy to maximize all the wealth preservation and enhancement opportunities.

Signed into law December 22, 2017, the voluminous tax bill cuts individual and estate tax rates. It lowers corporate tax rates. At 505 pages, the final bill is a hefty read. Skipping even one page can cause your advisors to miss critical, tax savings and wealth protection opportunities.These advisorsmust present you with a unified plan. The plan should mesh their individual expertise into a cohesive schedule of activities and milestones and their intended outcomes as they relate to maximizing your wealth protection and advancement.

These professionals require a team leader driving the shared goal of maximizing opportunities for tax savings and wealth protection.

Highlights of the significant and vast changes outlined in the 500-page tax-reform include:

529 Investment Plans can now be used to pay for private school tuition, K-12.

Alimony is no longer deductible for marriages finalized beyond 2018! ***

The basic exclusion amount for estate, gift and GST taxes has doubled to an estimated $11,200,000 for individuals dying in 2018. A married couple can pass $22,400,000 estate tax free with the use of portability. The provision sunsets in 2026. There is a finite window within which to plan.

Assets moved outside of your estate are not eligible for a step-up in basis.  Low basis assets that have grown substantially in value are likely best left in the owner’s name. This requires detailed explanation. Meticulous, cohesive planning analyzes and identifies measures to limit capital gains and estate tax exposure.

There are new limitations on deductibility of home mortgage interest (capped at $750,000 mortgage). The property tax deduction is now capped at $10,000. Creative strategies can and do overcome this $10,000 threshold. This may motivate second, third and fourth homes’ conversion to investment/rental properties.

Home equity interest is no longer deductible.

State and local income taxes can no longer be deducted beyond a $10,000 annual limit.

Philanthropy endeavoring taxpayers may consider “bunching” charitable deductions every other year, or every third year to intensify tax savings.

Generally speaking, self-employed taxpayers with pass through entities (LLC’s, S-Corps, etc.) will receive a 20% deduction of qualified business income or taxable income, less any net capital gain.

The deduction is not available for “specified service businesses” if the taxpayer’s taxable income exceeds $415,000 for MFJ or $207,500 for single filers, and is subject to phase-outs if income exceeds $315,000 for MFJ or $157,000 for single filers.

Specified ineligible service businesses include Health Care, Law, Accounting, Actuarial, Performing Arts, Reputation or Skill of one or more employees, Consulting, Athletics, Financial Services, Brokerage Services, Investing, trading or dealing in securities, commodities, etc.

There is also a complicated W-2 wage requirement for eligibility.

***Consider the “reorganization” of corporate entities through creative strategies  (which may also include new entities and trust structures).  Doing so may enable you to take advantage of the 20% deduction with these afore thought specified ineligible service businesses. Examples include utilizing spin off entities, converting to a C Corporation, increasing pension contributions or other more complex planning vehicles.***

All of this must impress upon on you the necessity to review asset protection, income and estate tax minimization opportunities through the prism of all your interrelated financial affairs. Their conjoined and individual functions require a topline director orchestrating their deployment and execution.

Speak with me about Atlantic Wealth Partners’ Family Office services. Our unique approach to the traditional Family Office was developed long before the advent of the recent tax-reform. Still, the urgency and utility of a Family Office in marshaling your existing professionals to maximize your ultimate financial benefit of the recent tax reform cannot be overstated.

Steve Olson CFP®, AEP® CEO | Family Wealth Advisor

Steve Olson’s experience spans over a decade of focused tax planning, legal strategy interpretation, investment management, and advisory services to wealthy individuals and families throughout the U.S. Over the course of his still young career, Steve provides counsel and management on individual assets and portfolios—encompassing a combination of securities, real estate, privately held businesses and other alternative investments—ranging in value from $5 million to over $400 million in value.

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