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HOW NEW TAX REFORMS IMPACT INVESTORS AND ENTREPRENEURS

by Lawrence-Crickenberger, Vice President, Estate Planning
published on January 24, 2018

This article originally posted on the Silicon Valley Bank Blog. Reposted here with SVB's permission.


On December 22, 2017, President Trump signed the new tax reform, the Tax Cut and Jobs Act (TCJA) into law. This is a significant change in the tax law and will take several months to truly see the full effect of the act.

Most of the individual and estate and gift tax provisions will “sunset” on December 31, 2025 providing a potential window of opportunity to take action before they revert back. As always you should consult a tax professional about your particular situation.

Below, SVB has summarized some of the most impactful provisions to investors and entrepreneurs, and provided practical actions for you to consider.

Individual Income Taxes

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Other Individual Income Tax Changes:

  • Retained Net Investment Income Tax (NIIT) “Obamacare” surcharge of 3.8%.
  • Increase of Standard deduction to $12,000 for individual and $24,000 for married filing jointly. Repealed the personal exemption.
  • Increase of Child Tax Credit to $2,000 per child with a phase out beginning @ $200,000/$400,000‡.
  • Repeal of most Miscellaneous Deductions (2% of AGI deductions)

Estate and Gift Taxes

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Corporate and Business Taxes

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Key 2018 Annual Limits Relating to Financial Planning *

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* No change means that there were no changes made for 2018 compared to 2017.
†This amount is subject to adjustment depending on final determination of the inflation factor.
‡ Whenever values are shown with a slash, e.g. $100,000/$200,000, the first value is for an individual tax payer and the second value is for a married couple filing jointly.
Sources based on current tax rates from IRS and College for Financial Planning web sites. California College Access Credit (CATC) is a credit available for individuals and business entities that contribute to the CATC Fund in 2018. Individual tax rates may differ based upon specific tax situation.

Conclusion

Top of mind for investors this year should be reviewing existing and new entity structures and from a personal point of view taking advantage of the increased gift tax exemption.

Entrepreneurs should re-visit personal taxes and AMT with their tax professional which may allow them to exercise ISOs without additional tax consequences. They should also be aware of the new rules relating to option plans and the ability for employees to defer taxes.

Because of the new tax changes, many traditional planning constructs will need to be rethought. The increase in the exemption amounts does not obviate the need to continue to plan for income taxes, asset protection, divorce, business continuity and potential future changes to income and estate and gift tax law.