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Five Questions To Ask Your Advisor About Tax Reform

The holiday rush took on new meaning in the nation’s capital this season. While many Americans trimmed the tree, lawmakers trimmed taxes, negotiated with colleagues, and signed the bill into law before the end of year as intended.

Key Provisions  
Different versions passed through the House and Senate, but during a period of reconciliation, congress agreed to make the following key provisions law:

  • Decreasing the corporate tax rate from 35 to 21%
  • Corporate alternative minimum tax stays at 20%
  • New 20% deduction for passive investors in pass-through businesses
  • Seven tax brackets remain, but are changed; as a point of reference, following are the changes for married couples who file jointly:


2018 – 2025


$0 – 18,650


$0 – 19,050


$18,651 – 75,900


$19,051 – 77,400


$75,901 – 153,100


$77,401 – 165,000


$153,101 – 233,350


$165,001 – 315,000


$233,351 – 416,700


$315,001 – 400,000


$416,701 – 470,700


$400,001 – 600,000


$470,701 or more


$600,001 or more

Standard Deduction


Standard Deduction


Personal Exemption


Personal Deduction


  • Doubles the child tax credit from $1,000 to $2,000 for families earning up to $500,000
  • Allows 529 accounts to pay up to $10,000 per year for K-12 schools
  • Mortgage interest deduction allowed for new home purchases of up to $750,000. This limit does not apply to existing mortgages. Additionally, there is no interest deduction for home equity lines.
  • Up to $10,000 deduction for state, local, and property taxes
  • Eliminates the individual mandate for health insurance
  • Allows a deduction of healthcare costs exceeding 7.5% of income
  • Retains the charitable giving deduction

See full details of the Tax Cuts and Jobs Act.

Five Questions for Your Advisor
HD Vest recommends quarterly reviews with your advisor, and the first quarter is a good time for proactive tax planning for 2018. Following are questions to guide your discussion and grasp how your finances will be impacted by the new law.

Question 1: Could my taxes go up? What will my 2018 tax obligation be under the new law? Work with your advisor to apply the 2018 provisions to your 2017 tax filing. This will help provide an estimate for 2018. While discussion and news reports on the law have centered on tax cuts, many Americans could be burdened with higher than expected taxes - especially those in California, New York, New Jersey and Connecticut. Plan ahead so you aren’t surprised.

Question 2: What deductions have been omitted?
Deductions you have relied on historically may have been eliminated. If you’re planning to move or buy a house, factor in changes to the deductions for mortgage interest and state and local taxes. Ask your advisor about other changes such as the deduction for alimony payments, which will be phased out after 2018 for new or modified divorce decrees.

Question 3: How will this impact my estate planning?
Ask your advisor to review your life insurance, trusts and annuities. U.S. equities should appreciate, so there may be better places to allocate your money. The estate, GST, and gift tax exemption amounts are doubled to $10 million (indexed for inflation) through 2025.

Question 4: Is there an opportunity to restructure my business to better position for tax breaks?
Under the law, business owners might consider stepping back and hiring a third-party manager to take advantage of the 20% rate for pass-through businesses, which is a significant savings compared to the highest rate for individuals of 37%.  Alternatively, business owners might consider restructuring their companies so that passive income streams are excluded from the operating company.

Question 5: Which companies are likely to benefit from a lower tax rate?
This tax reform will create significant value for US equity investors:

  • The 40% reduction in the corporate tax rate for publicly traded companies should lead to increased dividends, buybacks, and accelerated growth from reinvestment as the companies allocate the proceeds.
  • The reduction in tax rate to 20% for passive vehicles makes publicly traded REITs and MLPs more attractive investments.
  • The reduction for foreign subsidiaries to repatriate capital to their US entities should create a one-time windfall for investors in companies such as Apple with significant capital overseas – either in the form of a buyback or special one-time dividend.


James Hickey is the Chief Investment Strategist at HD Vest Financial Services®

The HD Vest affiliated companies exclusively provide financial products and services, and do not provide or supervise tax or accounting services.