Neil Gilfedder, CFA
Neil Gilfedder, CFA,
Vice President,
Portfolio Management

2017 was an excellent year for stock markets and a healthy year for economies around the world. Rarely have global stock markets seen such broad-based positive returns with so little volatility, and the gains continued into the beginning of 2018.

The Tax Cut and Jobs Act, signed into law late last month, makes many changes to the tax code. You’ll probably be affected financially by it in some way at some point. At more than 500 pages, however, the legislation is anything but a quick or easy read. That’s why we’re giving you a simple overview of some of the bill’s major points that may affect you.

  • Most of the seven marginal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) have been replaced by corresponding lower rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%).
  • The child tax credit has been doubled and the income level at which the credit begins to phase out has been significantly increased. Also, a new $500 nonrefundable credit is available for qualifying dependents who are not qualifying children under age 17.
  • Existing “kiddie tax” provisions are replaced by taxing a child’s unearned income using the estate and trust rates (instead of the parents’ tax rate).
  • Existing standard deduction amounts have been roughly doubled, which generally means fewer taxpayers will benefit from itemizing deductions in the future.
  • Individuals can now only itemize deductions of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes.
  • The individual deduction limit on home mortgage interest has been lowered to $750,000 ($375,000 for married individuals filing separately) of qualifying new mortgage debt.
  • Roth conversions can no longer be reversed by recharacterizing the conversion as a traditional IRA contribution by the return due date.
  • New marginal income tax brackets have been set for estates and trusts.
  • The estate and gift tax exemption amount has been doubled for 2018.

The new tax code gives you more to think about for 2018 on top of the usual concerns. Are you saving enough for your future? Can you save a bit more? Are you taking the right amount of risk — so if there is a market drop, you’ll be comfortable with how your portfolio behaves? That’s why now is a great time to review your retirement plan, including your saving and investing strategy.  We can help.

As we look forward to what lies ahead in the coming months, we should keep in mind that not all years will be as positive as 2017. Nobody knows how the markets will do in 2018. As in 2017, they face a mixture of headwinds and tailwinds from factors like a global economy that has been showing healthy performance and the continuing presence of geopolitical risks. What you can control is how you are set to deal with this uncertainty: Your real focus should continue to be on your long-term financial plan.