The federal estate tax exemption now exceeds $11 million per person. Accordingly, few individuals or married couples will owe this tax. Nevertheless, there is more to successful wealth transfer than reducing or eliminating estate tax. Ideally, you’ll want your assets to pass to the desired recipients with a minimum of turmoil and expense.
The Tax Cuts and Jobs Act of 2017 increased the federal estate tax exemption to $11.18 million for 2018. That’s per person, so the combined exemption for a married couple can be as much as $22,360,000 worth of assets this year.
We have seen an increase in market volatility in early 2018. A steep pullback in stocks could be good news for working people who are building retirement funds, but those approaching or in retirement might be hurt.
The Tax Cuts and Jobs Act of 2017 affected the tax deduction for interest paid on home equity debt as of 2018. Under prior law, you could deduct interest on up to $100,000 of home equity debt, no matter how you used the money. The old rule is scheduled to return in 2026.
The bad news is that you now cannot deduct interest on home equity loans or home equity lines of credit if you use the money for college bills, medical expenses, paying down credit card debt, and so on. The good news is that the IRS has announced “Interest on Home Equity Loans Often Still Deductible Under New Law.” (See IRS Information Release IR-2018-32.)
The Tax Cuts and Jobs Act (TCJA) of 2017 lowered corporate tax rates from a graduated schedule that reached 35% to a 21% flat rate. However, many business expenses are no longer tax deductible. That list includes all outlays that might be considered entertainment or recreation.
When couples divorce, financial negotiations often involve alimony. The tax rules regarding alimony were dramatically changed by the Tax Cuts and Jobs Act (TCJA) of 2017, but existing agreements have been grandfathered. In addition, the old rules remain in effect for divorce and separation agreements executed during 2018. Beginning next year, the rules will change, and the roles will be reversed.
Many small businesses are passthrough entities, including S corporations, partnerships, sole proprietorships, LLCs, and LLPs. The label indicates that all business earnings are passed through to the owners’ personal income tax returns. Thus, they avoid the corporate income tax.
The Tax Cuts and Jobs Act of 2017 contains a new tax benefit for pass-throughs. This provision is complex, but it is relatively straightforward for taxpayers with taxable income below $157,500 in 2018, or $315,000 on a joint return. Such business owners may qualify for a tax deduction that equals 20% of their qualified business income.
A key component of the Tax Cuts and Jobs Act of 2017 is the expansion of the standard deduction. In 2018 standard deductions are $24,000 (married couples filing jointly), $18,000 (heads of household), and $12,000 (all others). These amounts are almost double the respective standard deductions in 2017. However, personal exemptions were eliminated. The new tax law also trims some itemized deductions. Taxpayers can either itemize or use the standard deduction, so some shift to the standard deduction is likely.
It has been widely reported that the Tax Cuts and Jobs Act of 2017 lowers federal income tax rates for many people. The highest tax rate, for example, has fallen from 39.6% to 37%. However, there are some quirks in the new tax rates, and some people will actually face higher rates. For example, an unmarried person who had $220,000 of taxable income in 2017 would have been in the 33% tax bracket. With that same income in 2018, this taxpayer will face a 35% tax rate. To find your new tax bracket, refer to the table below.
The pros and cons of Roth IRAs, which were introduced 20 years ago, are well understood. All money flowing into Roth IRAs is after-tax, so there is no upfront tax benefit. As a tradeoff, all qualified Roth IRA distributions can be tax-free, including the parts of the distributions that are payouts of investment earnings. […]