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14 Mar Off
IRAs & Qualified Plans
Simple IRA & SEP IRA
Health Savings Account
Education
529 Plans Estate & Gift Tax
Alternative Minimum Tax (AMT)
Social Security
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 at FRA. 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).
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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 $2,100 threshold) 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 Also, the 3.8% Medicare surcharge on net investment income was not repealed.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. |
Summary
Article Name
2018 Reference Guide
Description
Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.
Author
MANNING & NAPIER
Publisher Name
Manning & Napier
Publisher Logo
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