What Does This New Tax Plan Mean to Me?

What Does This New Tax Plan Mean to Me?

There’s no secret; a lot of change is coming with the proposed tax bill dubbed the Tax Cut & Jobs Act of 2017.  Regardless if for it or against it (or have no idea what it is about), I suggest everyone understand its key components.

I know you all want to read all 1,000 plus pages of tax jargon (lol).  However, I decided to distill the key points into one blog post!  Most changes will go into effect in 2018 and sunset in 2025 (meaning the changes are up for review in 2025).

New Tax Rates:

The first important thing is the new tax rates.  There are still 7 tax brackets; however, the new rates are lowered as follows:

Single taxpayers


Married taxpayers filing joint returns and surviving spouses


Estates and trusts

This offers a big savings opportunity.   Just about every previous tax rate is being lowered a few percentage points.  In addition, the income bands are increasing (you’ll have more income in each of the lower bands).  For instance, the top tax rate in 2017 was 39.6% and went into effect once a married filing jointly individual made $470,700.  The new rates are 37% at the top which begin at $600,000 of taxable income.  To see a list of the complete current rates for comparison look here.

Standard Deduction and Personal Exemptions:

The new plan will be getting rid of personal exemptions.  However, the plan will increase standard deductions.  Those will be:

  1. $24,000 for married filing jointly individuals,
  2. $18,000 for heads of households,
  3. $12,000 for everyone else.

This was the “big” simplification of the tax code.  Most people will no longer itemize their deductions (as currently over 30% do).  Now, the majority will find it more beneficial to simply take the standard deductions instead.

Child Tax Credit Expansion:

Even though the personal exemptions are being removed, many of us will benefit from an increase in child tax credit.  Moving forward, the child credit will double from $1,000 per child to $2,000. Also, the phase-out will increase from $75,000 single (or $110,000 if married) to $200,000 if single (or $400,000 for those married filing jointly).  In the end, many of us will still benefit as tax credits are more valuable then deductions (as they reduce your taxes vs. reduce your taxable income).

Itemized Deductions Changing:

For this topic, here are the main items to note:

  1. One of everyone’s favorite itemized deductions will remain intact – the home mortgage interest deduction. However for homes purchased after 12/15/17, you can only deduct mortgage interest on the first $750,000 of mortgage values (vs. the current $1,000,000).  That said, the ability to deduct your first $100,000 of home equity loan will go away.
  2. Deduction of state, local, and property taxes will be limited to $10,000. Naturally, this hurts those living in high property tax or state income tax states.
  3. Miscellaneous itemized deductions (which are subject to the 2% floor currently) will be completely repealed through 2025.

New Qualified Business Income Pass-Through Deductions & New Corporate Tax Rates:

These provisions are getting all the press (as the “rich tax break”).  It allows a business entity to deduct (or pass through) 20% of qualified business income from a partnership, S Corp, or even sole proprietors.  This also expands to 20% of qualified REIT dividends, corporate dividends, and publicly traded partnership income.  Effectively, it allows for only 80% of these qualified incomes to be taxed.

There are a lot of nuisances here (such as phasing out if you make too much income, which blocks individuals from recharacterizing all their income as pass through).   In this case, an individual still must take a reasonable compensation as W-2.  Also, many service businesses are excluded from this benefit if the main asset of the business is the reputation or skill of one or more of the employees.

The other big news is corporate tax rates.  They are being lowered from 35% to 21%.  The hope here is to make U.S. corporations more competitive with international tax rates.  Will it work?  We’ll see.  For now, let’s hope these large corporations bring their money back to the United States and invest in jobs here.

Estate Tax Exemption:

The Federal estate tax exemption is now set to double come 2018.  This is an increase from roughly 5.1 million a person to 11.2 million (or 22.4 million per couple).  For most of us this means there is really no estate tax at the Federal level.


You can no longer deduct alimony payments to an ex-spouse.  However, if you currently are making alimony payments you’ll still be able to deduct them.

Related: The 1% No One Seems to Care About

529 College Savings Plan:

There is a very interesting new provision here.  One can now use 529 college savings plans to pay for elementary school expenses.  Previously, you could only use a 529 for post-secondary school.  Now, you have the ability to use these funds for things like private school tuition.  However if not used for college, the most you can withdrawal for any student in any given year is $10,000.  If for college, the amount is up to the entire allowable expenses.

IRA Recharacterizations:

Formerly, you had until October 15th the following year to reverse a Roth IRA conversion.  Now, once you convert the decision is permanent.  This doesn’t prevent one from doing a Roth conversion.  But, it takes away a financial planning strategy of being able to recode the conversion if it puts you in another tax bracket.


I’ll give a cookie to anyone who actually knows how they figure this thing out.  Starting in 2018 (and through 2025), the AMT exemption amount increases to $109,400 for married filing jointly and $70,300 for all others.  The phase out begins now at $1,000,000 for married filing jointly and half that for all others.  What does all this mean?  In essence far fewer people will be subjected to this confusing tax.  Got it?

Health Insurance Individual Mandate:

After 2018, there will no longer be a mandate forcing you to get health insurance (or else incur a penalty).  The “hot -button” Obamacare tax issue will be going away come 2019.

My Thoughts:

Unfortunately, I have only scratched the surface of all of the above items.  I could say so much more, but wanted to keep it brief (even if this is one of my longer blogs of the year).   These handful of topics, I felt, affected our clients and were particularly interesting.

Whether you are for it or against it, the tax changes are here to stay (at least until 2025).  Stay educated on what’s changing today, so you can better game plan for tomorrow!

Andrew Rosen
Twitter Email

In March 2010, Andrew Rosen joined the Diversified team, bringing with him nine years of financial industry experience. In his role as Advisor, Partner, Andrew forge ... Click for full bio

Do Valuations Matter?

Do Valuations Matter?

Written by: David Lebovitz

The S&P 500 has had an impressive start to the year, rising over 4% year-to-date with only three days of negative performance.

However, as the equity market has moved higher, investors have become increasingly concerned about valuation. While it is difficult to ignore the fact that the S&P 500 forward P/E ratio currently sits at 18.5x, well above its 25-year average of 16.0x, we believe elevated valuations may be justified for three reasons. First, 2018 earnings growth is expected to come in around 15%, suggesting investors will be compensated for paying a higher price, and second, inflation and interest rates are both below their long-term averages. In an environment of low rates, low inflation, and healthy earnings, perhaps it is appropriate for stock market valuations to be above average?

Finally, valuation is not a great predictor of short-term returns. As we show on page 6 of the Guide to the Markets, valuation tells you very little about what will happen over the next year, but a decent amount about what to expect over the next five years. For those who are still skeptical about equities given current valuations, it is important to remember that bull markets tend to go out with a bang, rising by an average of 26% during their final 12 months. This makes sitting on the sidelines expensive, particularly in a world of low interest rates.

Related: Will Companies Reinvest or Repurchase Due to Tax Reform?

So are valuations concerning? They have our attention, but we remain cautiously optimistic that equities can continue to push higher. However, late cycle markets require a more nuanced approach to investing, meaning active management will be essential. As such, we continue to see opportunity in the more value-oriented sectors of the market, with energy and financials being two of our favorite ideas.

Low inflation and yields can support higher multiples



Related: Will Companies Reinvest or Repurchase Due to Tax Reform?

Learn more about alternative beta and our ETF capabilities here.

Opinions and statements of market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These views described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be sold or redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.

J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC.
J.P. Morgan Asset Management
Empowering Better Decisions
Twitter Email

See how ETFs differ from other investment vehicles, learn how to evaluate them, and discover how ETFs can be used effectively to achieve a diversity of investment strategies. ... Click for full bio