Market Commentary, 12/22/17
As we predicted, President Trump signed the Tax Cuts and Jobs Act (TCJA) this morning, to finalize the first significant reform of the US Tax Code since 1986. The following are some highlights of the plan:
- There are still seven tax brackets, but the rates have changed
|Senate Income Tax Rate||Income Levels for Those Filing As:|
- Standard deduction increased to $12,000 single (from $6,350) and $24,000 joint (from $12,700)
- Personal exemption is eliminated
- Limits the state and local tax deduction to $10,000
- Child Tax Credit is doubled to $2,000 and phases out starting at $200,000 single and $400,000 joint
- Non-dependent credit of $500 for elderly parents and adult children with disabilities
- Mortgage interest deduction is limited to the first $750,000 of mortgage debt (current limit is $1,000,000)
- You can still deduct student loan interest, medical expenses (over 7.5% of AGI), and the teacher classroom supplies deduction.
- Homeowners are still able to exclude up to $500,000 for sale of their primary residence
- Estate Tax Exemption increased to $11 million per person
- Repeals the Obamacare Mandate – the federal fine imposed on individuals without health insurance
- Corporate tax rates reduced from 35% to 21%
- A one-time Repatriation Tax of 15.5% on cash and 8% for hard assets (equipment and inventory) upon return to the US
Individual Tax Summary
So what does this tax bill mean for you? More than likely you will pay less personal tax, but you are likely to lose the ability to itemize moving forward. As Wayne mentioned in last Friday’s commentary, if you plan to itemize your deductions this year, you should accelerate spending in those categories. For example, make sure to pay your property taxes in 2017 and consider making any future planned charitable giving this year as well.
Corporate Tax Summary
Not only will corporations save money moving forward, but the one-time repatriation tax will encourage US companies to bring home their overseas holdings. This is huge, as Reuters estimates about $2.6 trillion in US business profits now held overseas. The result of this influx of corporate cash will likely go to one (or a combination) of the following: shareholders via dividends and stock buybacks, customers in the form of lower prices and better products, or employees through higher wages.
Many predict that the bulk of these assets will go to the shareholders through stock buybacks, which is a good way to achieve immediate share appreciation and signal to investors that a company views its stock as undervalued.
It did not take long for the tax bill to make waves, as both Fifth Third and Wells Fargo announced they would increase their minimum wages to $15 per hour. Additionally, AT&T joined Fifth Third in announcing bonuses for all employees when President Trump signs the TCJA. Apple announced that they expect to bring back half of its overseas funds and they plan to reward shareholders with a share buyback and they expect to make more investments in job-creating US companies.
The TCJA should make most individual tax returns easier, primarily because most people will use the standard deduction moving forward. The following website has a “Trump Tax Calculator” that allows you to estimate what your tax liability will be under the new tax reform. https://www.marketwatch.com/story/the-new-trump-tax-calculator-what-do-you-owe-2017-10-26
We at Copelin Financial Advisors wish you a Merry Christmas and a Happy New Year!
Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
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