Tax Info

What the New Tax Law Means for Your Wallet, Your Financial Future


It’s not a question of whether the most far-reaching federal tax overhaul in decades will impact you, but how much it will impact you, according to personal finance experts. Here are some notes on the new tax law.

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If you earn an income, if you have money invested in the stock market, if you have dependent children, if you’re saving toward retirement or toward a child’s education, if you own a home or a business, chances are your 2018 federal tax returns will look considerably different than the returns you file for the 2017 tax year.


What’s inside the 1,000-plus pages of the Tax Cuts and Jobs Act of 2017 that President Donald Trump signed into law late last year? Which taxpayers are likely to be impacted most by the sweeping new tax policy? And how to take advantage of some of the positives in the policy, while minimizing the impact of the negatives? Read on to find out, then be sure to consult a tax expert to discuss how to handle your specific tax situation in light of the new law, because as CERTIFIED FINANCIAL PLANNER™ professional Evan Beach of Campbell Wealth Management in Alexandria, VA, points out, “With all these new rules, new tax-mitigation strategies will definitely emerge.”


  1. Impact on EARNERS

The income tax rate on people in five of the seven tax brackets drops by anywhere from 1 to 4 percent starting in the 2018 tax year. Say you and your spouse were in the 28 percent tax bracket and filed your taxes jointly. The new rate for people in that bracket is 24 percent and breaks at $315,000 instead of $233,000, so you would pay less tax on more income within that bracket.


As with many provisions of the new law, the individual income tax cuts are due to expire at the end of 2025, unless they’re renewed by lawmakers before then. They also could be repealed and replaced well before 2025, if another President comes into office, for example, or if Democrats gain a majority in the U.S. Congress and decide to overhaul tax policy.

  1. Impact on INVESTORS

The new tax law lowers the tax rate on corporations from 35 to 21 percent, which observers expect will bolster corporate earnings. That in turn could lead stock prices to trend higher, Beach suggests. Thus people who hold investments in the stock market, either in the form of shares of individual company stock, mutual funds, etc., either inside or outside their retirement accounts, are likely to benefit. Corporations that tend to pay the full corporate tax rate — mostly small and mid-sized companies — are likely to benefit most from the lower rate, so investors might be wise to prioritize investing in those types of companies, he says.


One thing that didn’t change in the new tax law is the relatively low rate at which long-term capital gains are taxed. That’s generally a positive for investors.


The new tax law leaves rules governing contributions to, and deductibility of, qualified deferred retirement plans such as 401ks and IRAs largely intact. That, coupled with lower income tax rates, suggests it could be wise in the near term for certain people to prioritize contributing to a Roth IRA, where money is taxed on the way in, unlike with a 401(k) or traditional IRA, where money is taxed on the way out. This strategy may make sense for people who believe the prevailing tax rate that applies to Roth contributions made today will be lower than the rate they’re likely to pay on the distributions they will take later from tax-deferred retirement accounts.


Of course, trying to predict future tax policy is pure speculation. The most effective hedge against uncertainty surrounding future tax policy, says Beach, is to appropriately diversify the tax treatment of investments, spreading them across tax-deferred accounts such as a 401k, after-tax accounts like a Roth, and a taxable investment portfolio.


The new tax law likely changes the entire decision-making dynamic around whether to itemize deductions on your federal tax return. That’s due to several key changes:


  • An increase in the standard deduction. Under the new tax law, the standard deduction increases starting in 2018 to $12,000 for individuals and $24,000 for married couples filing jointly, up from $6,500 and $13,000, respectively.


  • Elimination of the $4,050 personal exemption for each person claimed on a federal tax return, effective beginning with the 2018 tax year.


  • Doubling of the child tax credit, from $1,000 to $2,000 per child, effective in 2018.


  • Key changes in the tax-deductibility of widely used personal deductions, including charitable donations, state and local taxes, mortgage interest, medical expenses and more.


A significantly higher standard deduction beginning in the 2018 tax years means many people who formerly itemized their deductions (using Schedule A on their federal tax form) likely will begin taking the standard deduction. Indeed, Beach cites a projection that the share of taxpayers who itemize deductions will drop from around 30 to less than 10 percent. Overall, people who live in places with high state and local income and property taxes will be hit hardest by this shift, according to Beach.


In response to the new deduction dynamics, Beach says he expects more taxpayers to start “lumping” deductions. That is, that people who formerly itemized will lump items such as charitable contributions and expensive medical procedures into one tax year instead of spreading them across multiple years, in order to accumulate enough deductions above the standard deduction threshold to justify itemizing their deductions. People in that scenario would end up itemizing deductions every few years instead of every year.



Previous tax policy allowed people to deduct the mortgage interest paid on first and second homes for mortgages of up to $1 million. Under the new law, that deduction is still available, but it’s capped for new mortgages up to $750,000. This won’t affect home purchases made before Dec. 16, 2017, so long as the home closed before April 1, 2018.

The new tax law also eliminates the deduction for home equity lines of credit on a primary residence, beginning with the 2018 tax year. Also effective in 2018, there’s now a $10,000 cap on the amount of state and local property taxes that are deductible. There was no cap previously. Another change that could impact homeowners and property owners is the elimination of a deduction for unreimbursed losses from flood, fire, burglary, etc. Now that deduction only applies if the loss occurred in a federal disaster area. This change could make it more important to have certain types of property-casualty insurance, such as flood insurance.



As mentioned above, the new law doubles the child tax credit. It also raises the phase-out level for the tax credit to $400,000 of adjusted gross income for couples filing jointly, from $110,000, meaning significantly more families will qualify for the credit. The new law also established a $500 tax credit for dependents who aren’t your children.



The new tax law expands how funds in tax-favored 529 college savings plans can be used. In addition to covering college expenses, beginning in 2018, money from those plans can be used to pay for up to $10,000 of tuition expenses per year, per student, for enrollment at an elementary or high school. So 529 plans aren’t just for higher education anymore.

  1. Impact on BUSINESS OWNERS

Besides lowering the corporate tax rate from 35 to 21 percent, the new tax policy could bode well for people who own so-called “pass-through businesses” — LLCs, partnerships, S Corps and sole proprietorships. Effective in 2018, owners of these entities gain the ability to deduct 20 percent of their qualified business income, meaning they essentially will be paying taxes on only 80 percent of their revenue. The benefit of the deduction is phased out for specified pass-through service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly).



The new tax law is a good news/bad news proposition for the charitably inclined. The good news is that the new tax bill expands the deductible amount for charitable contributions from 50 up to 60 percent of adjusted gross income. However, fewer people are likely to take advantage of this provision, since fewer will have enough deductions to justify itemizing, explains Beach. As a result, people could end up stacking their charitable donations, as discussed in #4.


Under the old tax regime, people who itemized their deductions could deduct medical expenses above 10 percent of adjusted gross income. The new law lowers that threshold to 7.5 percent. However, that change applies only in the 2017 and 2018 tax years; the 10 percent threshold returns beginning in the 2019 tax year.


On the health insurance front, meanwhile, the new tax law eliminates the Affordable Care Act penalty on individuals who lack minimum essential coverage. Repeal of the penalty is effective for the 2019 tax year.


  1. Impact on THE VERY WEALTHY

Lawmakers doubled the threshold at which the federal estate tax kicks in, so beginning with the 2018 tax year, it applies only to estates of at least $11.2 million in asset value for an individual, and $22.4 million for a couple. Keep in mind, though, that close to 20 states and the District of Columbia maintain their own estate or inheritance taxes.


This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

An Investor’s Guide to Transitioning Your Money — and Your Mindset — to Retirement


The transition to retirement after years in the workplace, as welcome as it may be, can also be jolting and even downright daunting, for all the changes it brings to a person’s day-to-day lifestyle, to their state-of-mind and to the handling of their finances.


A key part of the shift into retirement mode, explains Michael Palazzolo, a Certified Financial Planner™ who heads Birmingham, MI-based Fintentional, is adjusting from a growth-focused approach to asset-management and investing, to an approach which recognizes that protecting assets from downside risk and volatility is as important as growing them. Successfully transitioning to retirement entails not only a shift in investing mindset, but also an actual shift in how assets are invested.

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And that may raise some potentially unsettling questions: Will the assets I’ve worked so hard to build last as long as I need them to, and are they adequately protected from potentially damaging swings in the financial markets? Will the sources I’m relying on for income provide enough to live the lifestyle I desire?


Questions like these can make the move into retirement “quite intimidating,” Palazzolo acknowledges. “It brings up a lot of emotions and for some people, a lot of fear.”


One way to find answers to these questions and defuse some of the anxiety that often accompanies retirement is by planning in advance for how to execute the shift from accumulation mode, where growing assets usually is top priority, to distribution or decumulation mode, where the focus is balancing growth with protection to ensure those assets are distributed efficiently to supply an adequate amount of income throughout retirement.


Here’s a look at some of the key steps involved in the accumulation-to-distribution transition and planning process:


Figure out the “when.” Financial professionals such as Palazzolo suggest starting the transition process five years before your projected retirement date. So an important first step for a person considering retirement is to pick a target retirement date.


Adjust how assets are allocated to reflect changing risk tolerance. A person for whom retirement is looming close has less time to recover from a sharp downturn in the value of their assets. For them, a sharp dip in asset value just prior to retirement can be particularly devastating, since they’ll be drawing from these assets for income during retirement. The less valuable their assets, the less the income-producing capability of these assets. So, to address this risk — sequence of returns risk, it’s known as in financial circles — it often makes sense for people whose assets are heavily weighted toward stocks to shift a portion of their money out of the stock market, into bonds and other more conservative fixed investments.


It also may make sense to shift the composition of the portfolio, including both stocks and bonds, to lower-risk investments, such as with more value-driven stocks and/or shorter-term bonds, adds Certified Financial Planner™ Leon C. LaBrecque, who heads LJPR Financial Advisors in Troy, MI.


Take steps to manage tax exposure. Because taxes can have a particularly negative impact on retirees living on a fixed income, financial experts recommend taking steps before and during retirement to manage and mitigate potential tax exposure. That can mean phasing in the aforementioned reallocation of assets over a period of years to spread out potential capital gains tax liabilities, says Palazzolo.


It also can mean taking steps to diversify assets in terms of their tax treatment. Distributions from pre-tax accounts such as a 401(k) or traditional IRA are taxed as ordinary income when they come out, unlike distributions from a Roth 401(k) and Roth IRA, which aren’t taxed when they come out. Converting a traditional IRA to a Roth IRA prior to retirement gives people access to a tax-free source of income. While they likely will incur taxes on the conversion, gaining access to that tax-free income source later can make the move worthwhile, explains Palazzolo.

Build a cash reserve. Having access to a pool of readily available cash, stowed someplace like in a money market account or CD, is vital for retirees, says Palazzolo. Say a person is planning to sell investments from their stock portfolio to provide income during the early years of retirement, only to see the stock market — and the value of their portfolio — drop precipitously. Instead of being forced to sell stocks when their value is down in order to generate income, people with a substantial cash reserve can start drawing from that reserve for income while holding onto their stock investments, hopefully until they regain their value. They also can use money from that reserve to purchase stock-based investments when their price is relatively low. All this leads back to the fundamental “buy low, sell high” investing credo.


How much cash to keep in reserve? Some financial professionals recommend stashing enough to cover one or two years’ worth of retirement income. Others suggest more, in case the stock market downturn lasts longer.

Keep assets in the stock market. Equity investments such as stocks and stock-based funds can serve as the main growth engine of a portfolio, even in retirement. Indeed, with people living longer these days, they need their assets to keep growing so they last as long as they’re needed. Equities also are proven to help investors keep up with inflation, should that become more of a factor. So while it may make sense for a person heading toward retirement to move some of their assets out of the stock market, keeping a substantial chunk of their assets in equities can be a good idea for many.


Review retirement accounts, including 401(k), 403(b) and IRAs, with an eye toward potentially consolidating them to make eventual distributions (withdrawals) from these accounts easier to manage, and, perhaps, to reduce investment fees and costs, which can free up additional money to use constructively. “By keeping [investment] costs down, you’re basically giving yourself more money to reinvest,” Palazzolo explains.


Take stock of income sources. It’s important to gain a clear picture of your retirement income well before retirement hits. That means looking at both the supply and demand sides of the equation: on the supply side, the sources you expect to provide income during retirement, how much they will supply, when they’ll supply it, for how long and in what form (lump sum or in a series of payments); and on the demand side, projecting how much income you expect to need to cover your expenses and support your retirement lifestyle. This way, if there’s an apparent income shortfall, you can start addressing it now, before it becomes a pressing problem.


In the context of income planning, it’s also important to consider when to start taking Social Security benefits. People have options as to when they can begin drawing benefits — early, at age 62, at retirement age (65 to 67), or later, up until age 70. Waiting can make a substantial difference in the monthly benefit a person receives.


Revisit your asset mix and recalibrate if necessary, to maintain an optimal allocation. As financial markets move, the percentages of stocks and bonds in your portfolio likely will fluctuate, sometimes substantially enough to warrant a process called rebalancing, which entails moving money out of one class of assets inside the portfolio, to another class. Financial professionals recommend revisiting asset allocation at least annually — and as circumstances dictate.


Turn to a financial professional for guidance. The transition from the working world to retirement, and from accumulation mode to distribution mode, involves a variety of moving parts and a series of critical decisions. One misstep can prove costly. So consider enlisting the services of a financial planner for help making the transition as smooth as possible. To find one in your area, check out the Financial Planning Association’s searchable national database of personal finance experts at

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.


Year-Round Tax Tips for Business Owners


Business owners are constantly seeking ways to strengthen their financial bottom line, to gain that little extra competitive edge. The tax code is one place worth looking.

Here the Financial Planning Association (FPA), the nation’s largest group of personal finance professionals, combs through the tax code to provide business owners with tips to maximize the efficiency of their tax returns and bolster their bottom line in the process.

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TIP: Before executing any of the suggested maneuvers that follow, be sure to consult an attorney, accountant and/or financial advisor, suggests certified financial planner Kelly L. MacRae of Beacon Point Advisors in Newport Beach, CA. “It’s a good idea to have an expert help you flesh this tax stuff out, because it can get tricky sometimes.”

TIP: Consider (or reconsider) your company’s legal structure. How a business entity is structured can have major consequences not only on taxes, but also on the personal and financial liability of its owners. To protect owners from liability, says MacRae, consider converting a sole proprietorship to an LLC, LLP or corporation, for example. Also, since retirement plan contribution limits and business tax liabilities (such as FICA, Social Security, employer and employee taxes) often are determined by the legal structure of the business, talk with an attorney or accountant about the type of entity that might fit best with your situation.

TIP: Take advantage of the Section 179 tax deduction that allows businesses to deduct from gross income the entire purchase price of qualifying equipment (computers, copiers, office furniture, certain business-use vehicles, etc.) and other “tangible” business goods, including software, purchased or financed in the year they acquire it instead of depreciating the purchase price over a period of years. The equipment must have been financed/purchased and put into service by Dec. 31, 2014.

If possible, take advantage of this provision in the 2014 tax year, says MacRae, before the maximum deduction drops drastically, from $500,000 (the limit for the 2014 tax year) to the 2015 limit of $25,000. Check out this page of the IRS website for more info about Section 179 deductions:

TIP: Weigh which retirement plan is right for your business. From traditional 401(k)s and individual 401(k) plans to SEP IRAs and more, businesses can choose from a range of retirement plans, each of which comes with its own distinct features and tax ramifications. For business owners seeking to maximize tax-deferred retirement plan contributions for themselves and their employees, while maintaining year-to-year flexibility with those contributions, the combination of a 401(k) with profit-sharing often provides the most bang for the buck, according to MacRae. SEP IRAs also hold appeal for the flexibility they provide, as they allow contributions to be made up until the tax filing extension deadline of October 15 the following year.

TIP: Be diligent in tracking, documenting and claiming expenses. From meals and entertainment to automotive expenses and much more, a broad range of business expenses can be claimed to offset income and thus, to reduce tax liability. With automotive expenses, does it make more sense to use the standard mileage deduction or to deduct actual expenses and depreciation? An accountant or financial professional can help answer questions like these.

TIP: Take advantage of other available deductions and write-offs, for home office, charitable donations and more. One worth noting is a provision that allows a business owner to write off 100% of a charitable contribution as advertising if their company logo appears somewhere on the donation recipient’s collateral materials, such as the program for a charitable event held by that organization.

TIP: Track business income over the course of the year and adjust tax payments accordingly. This applies chiefly to business owners who pay quarterly state and federal taxes. Be sure those quarterly payments are in line with income, so you don’t over- or underpay.

April 2015 — This column is provided by the Financial Planning Association® (FPA®) of Northeastern NY, the principle professional organization for CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern NY if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.