The Tax Cuts & Jobs Act that was passed this past year represents the biggest change to tax code since 1986, and the second biggest change since 1913. While the goal was to simplify taxes for the majority, there are several changes that may affect your personal and business finances beginning in 2019.

Duncan McGuffie, Prudential's Divisional Vice President, presented a workshop that outlined the tax changes and provided tips for looking at your portfolio through a tax efficiency lens to some of Citizens National Bank's customers. Here's a brief overview of his take on the new tax law:

"The new law almost doubled standard deductions, however itemized deductions are now limited to about $10,000. This results in reducing the number of those who itemize their return from 24% to about 8% in 2019," explains McGuffie. It's most likely your tax rates have fallen with the new simplified brackets. However, there are two exceptions where the marginal rate increases from 33% to 35%: Married couples with taxable income between $400,000 and $424,950 and Single filers with taxable income between $200,000 and $424,950. It's important to remember however that these reductions are set to sunset in 2025, so they are only temporary.

Some other changes that may affect your return include:

  • The child tax credit has doubled to $2000, of which $1400 is refundable.
  • Deducting interest paid on a mortgage is limited to debt of $750,000 or less. Previously interest on mortgage debt up to $1 million was deductible.
  • The deduction for interest paid on home equity loans is eliminated, provided the loan was not used for home acquisition, construction or improvement.
  • Charitable giving is still fully deductible up to 60% of Adjusted Gross Income. "One way we encourage retirees to avoid additional income tax is to consider having their required minimum distributions be sent directly to the charity of their choice without taking receipt of it first," comments McGuffie.

Benefits for businesses

While the previous points outline how the tax law affects individuals, McGuffie points out the biggest benefit of the new law is for businesses. "The top corporate tax rate was previously 35%. It's now 21%, which affords businesses a lot more opportunity to invest in their business and employees, and encourages keeping their headquarters in the US rather than using offshore accounts or merging with small companies in foreign countries in order to take advantage of lower taxes." Additionally, businesses can now depreciate an entire capital expenditure in one year, versus having to spread it out over several years. Businesses such as service providers who are set up as sole proprietorships or S corporations are the exception to the big decreases in tax rates as their pass-through rate only decreased from 39.6% to 37%.

View the presentation

For more information regarding changes to estate planning, college savings and recommendations regarding when to use a taxable versus a tax-deferred account, view Duncan's presentation on CNB's YouTube channel - youtube.com/cnbohio. For questions regarding planning for retirement and your options for social security, contact a Citizens Wealth Management Group representative for a free consultation at 419-358-8060 or cwmg@lpl.com.

 

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