William Penn Life, 2018 (53. évfolyam, 1-12. szám)

2018-03-01 / 3. szám

Moneywise

Photo © Can Stock Photo/mb lach

short-term capital gains.

Secondly, under the new law, there are still three capital gains thresholds, but they don't exactly match up to the new tax brackets. Under the old law, the 0% long-term capital gains rate applied to individuals in the two lowest brackets, 15% to the next four brackets and 20% to the top tax bracket. Instead of this type of structure, the new tax law still includes the 0%, 15% and 20% maximum capital gains tax, but the income levels have changed and include only three levels as opposed to seven under previous law.

Tax breaks for parents

I mentioned earlier that the personal exemptions are going away, which could disproportionately affect larger families. This loss should, however, be made up for by the expanded Child Tax Credit. This credit, which is available for children under age 17, doubles from $1,000 to $2,000 per child and increases the amount that is refundable to $1,400. A "refundable" credit is one that you can get refunded-even if your tax bill is zero. That contrasts with a "non-refundable" credit which can only be used until your tax bill is zero, then is fully used up. For families with lower to moderate levels of income, refundable credits (such as this one and the Earned Income Credit) are HUGE!

There are two other significant changes to the Child Tax Credit. First, this credit could be "phased out" if the parents' income exceeded a certain level. The new law increases the phase-out limits for individuals from $75,000 to $200,000 and from $110,000 to $400,000 for married individuals, thereby assuring that many more families will now be able to take advantage of the expanded credits.

The new tax law also includes a non-refundable credit of $500 for your dependent children that are over the age of 17 and even extends to elderly parents that are claimed as a dependent on your tax return. These two changes alone will have a positive impact on a significant number of households.

Another positive for parents in the new tax law is that the Child and Dependent Care Credit as well as the Credits for Education remain in place. One important change under the new law is that a parent can now use 529 Plan funds for any school—private or public—and includes all levels of education. In other words, if you have children in private school in grades K-12, you can use the money from their 529 account for these expenses as well as college.

Mortgage interest, charitable contributions and medical expenses

The new tax law expanded the standard deduction to a level that is expected to decrease the number of tax filers who itemize deductions by 25%. Still, there will be a number of filers who will benefit from itemizing deductions, and there have been significant changes here as well:

1) mortgage interest can only be claimed on mortgages up to $750,000 (previously $1 million);

2) home equity debt interest can no longer be deducted (previously $100,000);

3) charitable contributions are increased to 60% of income, up from 50% previously;

4) the medical expense deduction limit has been reduced back to 7.5% from 10% under the old law; and

5) the SALT deduction (State and Local Tax deduction, which includes all state, local, sales and property taxes) is capped at $10,000.

Finally, there are some common deductions that have been eliminated entirely in the new tax bill:

• alimony deduction (for divorces entered in 2019 and later)

• casualty and theft losses (unless attributed to a federally declared disaster);

• unreimbursed employee expenses;

• tax preparation fees;

• other miscellaneous expenses subject to the 2% AGI limits; and

• moving expenses.

Most of the individual tax breaks are temporary

So far, we have discussed the tax law changes that will affect individuals. Most of these changes to the individual tax law are temporary in nature, and they're set to expire after the 2025 tax year. There were also sweeping changes made to the corporate tax structure, which are beyond the scope of this discussion.

So, how will you be impacted personally?

While everyone's situation is unique, I would anticipate a reduction in most of your tax situations under the new law. For example, I met a client-a married couple with moderate income around $60,000—and they will see a reduction of nearly $2,500 in total tax this year. Hearing this good news, they made the decision to reduce the withholding on his pension and decided to purchase some additional life insurance with a portion of the tax savings, a decision they had been putting off for some time.

If you still file federal tax returns, you should have a better idea on the effects of the new tax law when you compare the new brackets to your 2017 return. Consult your tax advisor for more advice on how the new law will impact your personal situation.

Still confused by all of these changes? You're not alone! Consult your tax advisor for advice on how the new laws will impact you, but call on your WPA agent or broker for all your life insurance and annuity questions. Don't have an agent? Call the Home Office today and we'll be glad to assign your account to a local representative.

Till next time, THINK SPRING! □

WILLIAM PENN LIFE 0 March 2018 0 5