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New Tax Plan and You

The new tax law has a lot of changes for investors to digest. Over the next few weeks the intricacies and strategies to implement them will become clearer and I will address many of them in my quarterly letter. In the meantime, here are a few items that our investors may want to explore before the end of 2017 as well as a quick overview.  
  • Investors in higher taxed states such as NY, NJ, IL, CA, MD, ME, and MA should try to prepay their 2017 final tax payment during 2017 as well as prepay their 2018 property taxes. Not every municipality allows prepaying property taxes but the new tax rules only permit up to $10,000 in state and local taxes to be deducted from your Federal taxes and this includes property taxes.
  • Charitable giving may be more beneficial in 2017 than 2018 for many tax payers due to the increase in the tax deduction to $24,000 for couples. If you are not able to deduct expenses higher than that figure, there is little reason to itemize deductions. For larger charitable donations, consolidating your charitable giving using donor advised funds may be a way to use gifting more effectively from a tax perspective in the coming years.
Here is a broader overview of the new rules:
  • Seven tax rates, starting at 10 percent and reaching 37 percent for incomes above $500,000 for singles and $600,000 for married, joint filers. Shown below as singles then married filing jointly.
    • 10%: $0 to $9,525 / $0 to $19,050
    • 12%: $9,525 to $38,700 / $19,050 to $77,400
    • 22%: $38,700 to $82,500 / $77,400 to $165,000
    • 24%: $82,500 to $157,500 / $165,000 to $315,000
    • 32%: $157,500 to $200,000 / $315,000 to $400,000
    • 35%: $200,000 to $500,000 / $400,000 to $600,000
    • 37%: $500,000 and above / $600,000 and above 
  • Corporate tax rate drops from 35% to 21% beginning in 2018.
  • Individual alternative minimum tax exemption amounts: $70,300 for singles and $109,400 for joint filers.
  • Obamacare individual mandate: eliminates penalties for failing to buy health insurance.
  • Standard deductions: $12,000 for single tax payers and $24,000 for married couples. Personal exemptions repealed.
  • Child tax credit: doubles the credit to $2,000 and provides it for each child under 17 through 2025. Raises the phase out amount to $400,000, and caps the refundable portion at $1,400 in 2018.
  • Estate tax: Doubles the thresholds to $11,000,000 for individuals and almost $22,000,000 for couples.
  • Mortgage interest payments remain deductible on first and second homes; however, new mortgages are deductible only up to $750,000 starting on Jan 1, 2018. Older ones are grandfathered and remain deductible.
  • Capital gains rules remain unchanged with the same limits as 2017. No changes to strategies for realizing gains/losses.
  • Medical expenses are currently deductible if expenses exceed 10% of income. The new law lowers that threshold to 7.5% for both 2017 and 2018. 
  • ROTH conversions are still permitted but reconversions are not permitted under the new rules. The “backdoor" ROTH contributions are still permitted under new tax rules.  
  • Contributions for 401k’s increase to $18,500 and $24,500 for individuals over 50 in 2018. IRA contributions remain limited to $6,000 plus $1,000 catch up for those over 50 years old.
If you have any questions about the tax plan and how they may affect your investment strategies, do not hesitate to contact us.



Edwin R. Baldrige III, CFP®
Baldrige Asset Management LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly notice filed, or is excluded or exempted from registration requirements. Discussions on our blog do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any strategy that may be suggested. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

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