On December 22, 2017, President Donald J. Trump signed into law the “Tax Cuts and Jobs Act” (the “Act”). The Act is the most comprehensive tax bill passed in the last 30 years and made substantial changes to our individual, business, international and estate tax rules.
See my seminar outline “An Overview of the Tax Cuts and Jobs Act,” where I lectured on the Act in New Orleans at a professional conference attended by attorneys from the Trust and Estates and Real Estate Committees of the Lake County Bar Association.
Some of the matters discussed in my outline are as follows:
Congress estimated that over a 10-year period, $1.456 trillion will be added to the deficit due to the Act. Proponents argue that under “dynamic scoring” some of these costs will be mitigated by projected growth. Time will tell whether this is correct, but the increasing federal deficit should be a concern for all.
Rate Reductions. The Act makes substantial decreases in the individual and corporate rates and adds the new (and confusing) “QBI” 20% deduction for pass-through entities.
Expanded Estate Tax Exclusion Amounts. The Act doubles the federal estate and gift tax exclusion amount from $5.59 million to $11.18 million (2018).
The individual tax cuts, QBI deduction and estate tax exclusion increases are temporary measures scheduled to expire (“sunset”) on December 31, 2025. Given our increasing national debt, it is unclear whether Congress will make make these changes permanent in 2025. Thus, there is a significant possibility that the individual and estate tax cuts will expire in 2026, with reversion to prior law.
The outline discusses the specifics of many of the individual provisions, including changes to medical expenses; repeal of the casualty loss deduction; elimination of personal exemptions; repeal of the Obama Care individual mandate penalty; 529 Plan changes; repeal of moving expense deduction; changes to charitable deductions; repeal of favorable tax treatment of alimony;
Liberalization of the Alternative Minimum Tax rules, which should decrease AMT filers to 200,000 (compared to 5,000,000 under prior law);
The dramatic increase in the standard deduction (married taxpayers - $24,000; prior law $12,700; single taxpayer $12,000; prior law $6,350). These changes mean only about 12% of taxpayers (30% under prior law) will now itemize their deductions.
The state and local tax deduction for property and state income taxes (“SALT”) is now capped at $10,000 (married) and $5,000 (single). These caps will prevent many taxpayers in high property tax states (such as Illinois) from itemizing taking into account the new higher standard deduction limits. The outline discuses planning strategies to optimally benefit from SALT and charitable deductions in selected years.
The 20% QBI Deduction for pass through entities, along with multiple examples of planning opportunities thereunder. It is expected that many taxpayers will make entity changes, shuffling between sole proprietorship, S Corporation and partnership tax status in order to maximize this deduction.
Finally, the article discusses the Act’s dramatic doubling of the estate tax exclusion and how this is a “paradigm shift.” Estate taxes are now not a major concern for many clients; the increased importance of income tax planning; the increased importance of having flexible trust provisions and dealing with the loss of “stepped up” basis for credit shelter trusts.