14 Mar Off
|IRAs & Qualified Plans
Simple IRA & SEP IRA
Health Savings Account
Estate & Gift Tax
Alternative Minimum Tax (AMT)
Social Security benefits are reduced if someone receives benefits and
continues to work. The benefit is reduced $1 for every $2 or $3 earned
above the 2018 earnings wage base of $128,400. There is no reduction
For additional information about Social Security, please see Manning &
Napier’s 2018 Social Security Guide.
Important Dates & Deadlines
*Subsequent RMDs must be taken by December 31 of each year.
By waiting until April of the year after turning 70 ½ to take the first RMD,
it is important to note that an IRA owner must then take two distributions
before December 31 of that year (i.e. your prior year’s RMD and the
current year’s RMD).
|Capital Gains & Qualified Dividends
For 2018, rates are applied to taxable income levels:
(Short-term capital gains are taxed at income tax rates)
Tax is applied to the lower of net investment income or modified
adjusted gross income over certain thresholds ($250,000 joint filers/
$200,000 single filer).
Income Tax Rate Schedules
The income tax brackets for Married Filing Separately are half of
the amounts for Married Filing Jointly. The brackets for Heads of
Households generally fall between the brackets for single and joint filers.
Kiddie tax: unearned income is taxed at trust and estate rates (over the
Income Tax Exemptions, Deductions, & Credits
Tax Cuts and Jobs Act
The highest marginal income tax rate will go from 39.6% to 37%.
While there was a lot of talk about reducing the number of income tax
brackets, the new law continues to have seven brackets (10%, 12%,
22%, 24%, 32%, 35%, and 37%). In general, these brackets allow for
moderately lower marginal rates for most filers. However married filers
making between $400,000 and $424,950, and single filers with income
between $200,000 and $424,950 will move into a higher 35% bracket
(the prior law kept those filers in the 33% bracket).
• The tax rates on long-term capital gains and qualified dividends do not
change (rates of 0%, 15% and 20%), although the rates are attached
to specific dollar amounts, not the new income tax brackets. Also, the
3.8% Medicare surcharge on net investment income was not repealed.
Therefore, the maximum rate for long-term capital gains continues to
be 23.8%, plus possible state tax.
• The personal exemption (a deduction allowed for each taxpayer and
their dependents) is permanently repealed.
• The Standard Deduction is almost doubled ($24,000 for married,
$18,000 for head of household, and $12,000 for singles). With a much
higher Standard Deduction (a permanent change), fewer taxpayers will
choose to itemize, which can simplify the filing process for many.
• There is a larger Child Tax Credit of $2,000 per qualifying child (under
17), with much higher phase-outs ($400,000 for married and $200,000
for heads of households and singles). There is also a $500 credit for
dependents not eligible for the child credit.
• The deduction for state and local taxes (SALT) has not been fully
repealed, as outlined in early proposals. The SALT deduction will be
capped at $10,000 and was a late compromise to satisfy taxpayers in
high tax states.
• The mortgage interest deduction (for first and second homes)
is lowered to a maximum loan of $750,000 (from $1 million) for
mortgages after December 15, 2017. Existing mortgages can be
grandfathered under the current law of $1 million.
• The Alternative Minimum Tax has not been repealed, despite rumors
of its demise. However, the new law increases the exemption amounts
significantly ($109,400 for married filers and $70,300 for singles). The
phase-out for the exemption increases from $150,000 to $1 million for
married filers and from $112,500 to $500,000 for singles. This AMT
change expires in 2025.
• Medical expenses can be deductible in 2017 and 2018 if they exceed
7.5% of Adjusted Gross Income. In 2019, it returns back to 10% of AGI.
• Various expenses that fall under Miscellaneous Itemized Deductions
(e.g., tax preparations fees, investment fees, trustee fees, union dues)
are no longer deductible.
• Charitable contributions remain deductible. In fact, cash gifts to public
charities can now be deductible up to 60% of AGI (up from 50%). It
remains to be seen how much the higher standard deduction impacts
charitable donations since fewer filers will be itemizing.
• The estate tax exemption is doubled to $11.2 million per person (or
$22.4 million for married couples) with a 40% tax rate. Lifetime gift and
generation-skipping transfer tax exemptions are also increased to the
same level. The exemption is indexed to inflation until 2025, then will
revert back to 2017 levels (adjusted for inflation).
• 529 plan assets can now be used to fund K-12 education (up to
$10,000 per year). Early proposals eliminated the ability to contribute
to Coverdell Account, which can also fund K-12 expenses, but the final
Bill allows for contributions.
• Roth IRA conversions can no longer be recharacterized which means
that investors must be fully committed to a conversion before making a
decision. Contributions to Roth IRAs can be recharacterized.
• Investors continue to have the option to identify specific lots of a
security to sell (if they own multiple lots) for possible tax advantages.
Early versions of the bill made FIFO mandatory.
Consult with an attorney or a tax or financial advisor regarding your
specific legal, tax, estate planning, or financial situation.
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