2017 Tax Act Changes the Strategy Game for Tax & Estate Planning

Key: New Rules Could Have a Huge Impact on Charitable Giving, Estate Exemptions

Congress passed the Tax Cuts and Jobs Act of 2017 just days before recessing for the year, and most changes went into effect beginning Jan. 1, 2018. This wide-ranging bill alters everything from sunset provisions and standard deductions to tax credits and tax rates. Of particular interest to CPAs, attorneys, and financial planners is how the bill will alter tax, financial, and estate planning strategies.

Taxation consultant Arthur Werner takes a detailed look at these changes in a live webinar for Eli Financial, “Understanding the Tax Cuts and Jobs Act of 2017.” He covers what legislative changes took place and how they may affect the compliance and planning needs of your clients.

Strategies for Big & Small Charitable Gifting

The tax act, noted legal experts from Hinshaw & Culbertson, repealed most itemized income tax deductions and increased the standard deduction—which is now $24,000 for married couples filing jointly, $18,000 for heads of household, and $12,000 for single taxpayers. Itemized deductions that did not get chopped include a limited amount for state and local income taxes, mortgage interest, and charitable deductions. Of particular note here are impacts to charitable deductions.

How: One way to handle charitable giving under the new law is to bundle donations. “Married taxpayers with no mortgage interest deduction will have at least $14,000 of standard deduction over and above the deductible [state and local income taxes]. For many, that would mean charitable deductions in that year are non-deductible,” Hinshaw & Culbertson explained. “One might make two or three years’ worth of contributions to make them deductible in one year and take the next year or two off.”

Another idea: Big donors may opt to create a “donor advised fund,” which is like a private charitable foundation. Donors would fill the fund with a minimum initial contribution of $5,000, and then dole out gifts as they see fit.

“Because the contribution to the Fund is deductible when you initially make the contribution, you can utilize the charitable deduction in that year for a contribution which is large enough to be an itemized deduction even if you make no distributions to any charity for years afterward,” Hinshaw & Culbertson explained.

Resources: In addition to the National Philanthropic Trust, donor advised funds can be set up through asset management firms like T. Rowe Price.

Estate Taxes: A $22.4 Million Exemption

While President Trump did not get all of the tax cutting he had hoped for in the new tax bill, wealthy families did get a major break thanks to estate tax exemption changes, Forbes noted.

The bill temporarily doubles the estate, gift, and generation-skipping tax amount from $5 million to $10 million, and another provision lets some couples double that. With inflation figured into the amount, the exemption could reach $22.4 million in 2018.

Act fact: Those considering taking advantage of the rule should act now, since a sunset provision in the bill means it could revert back to $5 million. “In this window, the tax bill offers enormous planning opportunities for the rich,” the Forbes story noted.

Law firm Much Shelist agrees that those considering taking advantage of the enhanced exemptions do so sooner, not later. “Assuming that you have an appreciating asset base, the sooner you implement a planning strategy, the greater the amount of future appreciation that will be shifted out of your estate,” the firm said in a statement this winter. “Because the exemptions are now at historically high levels, rapidly appreciating assets will have an exponential impact on any gifting strategy.”

But before you take any action or advise your clients, Werner cautions, make sure you know exactly what the law allows.

To join the conference or see a replay, order a DVD or transcript, or read more

Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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