Chris Bouffard
Chris Bouffard, CFA®, Managing Director, Research Center

2017 was an excellent year for capital markets and economies. Rarely have financial markets seen such broad-based positive returns with so little volatility and downside. Momentum carried into 2018 with President Trump’s signature on a sweeping $1.5 trillion tax-cut package. This new law fundamentally changes the individual- and corporate-tax landscape.

The Tax Cut and Jobs Act is a big deal. 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  • Most of the seven marginal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) have been replaced by corresponding lower rates (10%, 12%, 22%, 24%, 32%, 35%, and 37%).
  • Existing standard deduction amounts have been roughly doubled, which generally means fewer taxpayers will itemize deductions going forward.
  • New marginal income tax brackets have been set for estates and trusts.
  • The estate and gift tax exemption amount has been doubled for 2018.
  • 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).
  • 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.
  • Roth conversions can no longer be reversed by recharacterizing the conversion as a traditional IRA contribution by the return due date.

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 your investments diversified enough to weather a sudden market drop?

That’s why now is a great time for a quick review of your financial plan — including your saving and investing strategy — with your advisor. We strongly encourage you to reach out to him or her to set up some time to talk.

As we look forward to what lies ahead in the coming months, we need to remind ourselves that it will be hard to match the extraordinarily favorable results of 2017. Like last year, 2018 will face many headwinds. So even against a global economic backdrop that remains healthy and expansionary, it will be important to maintain patience and perspective in 2018. Your real focus should continue to be on your long-term financial plan.