Use Today’s Tax Overhaul to Invest in Tomorrow

Here's a roundup of what is changing for 2018, and how you can make the most of your potential savings.

Uncle Sam wants you … to spend some money.

That’s the idea behind the Tax Cuts and Jobs Act, the largest tax overhaul in decades. Or, as President Donald Trump said in October, the hope is that these Republican-led reforms “will be rocket fuel for the economy.”

Only time will tell about that. Politicians tend to oversimplify the connection between tax cuts and economic growth, and top economists have weighed in on both sides of the debate. The essential thing to know now is that you could end up with a little more money in your pocket for the next few years — to spend, save or invest. But you’ll have to design and implement a plan to make the most of the revisions. And to do that, you’ll need to understand how the reforms could affect you.

Some of the key changes include:

1. The corporate tax rate is lower.

Trump says the cut — from 35% to 21% — will spur job creation and lead companies that moved operations offshore to return to the United States. Already, some businesses have cited the cut when offering bonuses and wage hikes. And it is sure to benefit shareholders.

2. Individual tax brackets and rates have been adjusted.

The limits of each bracket were increased and the tax rates are lower in five of the seven brackets, which potentially means many households will owe less in taxes.

3. Mortgage interest deductions have been reduced.

Households currently can deduct interest payments on mortgages up to $1 million, but for those who buy homes after Dec. 14, 2017, it will be capped at $750,000. Also, deductions for home equity debt (currently capped at $100,000) have gone away if the money is used for any purpose other than to buy, build or improve a principal or second home.

4. State and local tax deductions are now capped.

Previously, households could deduct all their state and local income, property and sales taxes without limits (except for the highest earners). Now, the federal deduction for all these taxes combined is capped at $10,000 per year.

5. Standard deductions have nearly doubled.

But itemized deductions have been reduced and personal exemptions have been eliminated. The standard deduction has gone from $6,350 to $12,000 for single filers, and from $12,700 to $24,000 for married couples filing jointly. This could have a dramatic effect on how you file your taxes going forward and may change the way you wish to donate to charity.

6. The Child Tax Credit is higher, and eligibility has been revised.

Qualifying households now can claim up to $2,000 per child under age 17 (up from $1,000). Also, households with adjusted gross incomes under $200,000 (for individuals) or $400,000 (married filing jointly) can claim the full credit. Previous limits were $75,000 and $110,000, respectively. There’s also a new credit for non-child dependents (elderly or disabled dependents over age 17). It has the same income thresholds.

7. Estate tax rules have been relaxed.

Estate and generation-skipping transfer tax exemptions have doubled from $5.6 million to $11.2 million per person.

The Bottom Line: Some Possible Steps to Take

These are just a few of the reforms that will affect individuals and businesses — so you can see the importance of staying informed. You can check out all the changes at the House Ways and Means Committee’s website.

Many of the provisions are scheduled to end in 2025, which means you have eight years to plan around what you’ve gained and what you’ve lost. For example:

  • Make a move. You may want to take this opportunity to move some money from your tax-deferred retirement accounts to tax-free accounts. You’ll pay taxes on the money now, but your future self will thank you, as tax rates could go much higher.
  • Pay it off. You also might want to pay off your home equity line of credit, since you won’t have that deduction anymore.
  • Home shop thoughtfully. If you’re planning to buy a new home, you may wish to keep an eye on the size of the mortgage and what kind of property taxes you’ll be paying.
  • Study college options. If you have children, consider how you might use your tax savings to help pay for college tuition.
  • Talk taxes with the pros. If you’re close to retiring, or already retired, talk to your financial adviser and a tax professional about how you can boost the tax efficiency of your overall retirement plan.

Remember: You don’t have to spend the money the Tax Cuts and Jobs Act saves you — you can invest it in your family’s future. And you’ll be much more likely to hold onto it and grow it if you have a plan in place long before you file your 2018 return.

Kim Franke-Folstad contributed to this article.

Cornerstone Wealth Management offers securities through Kalos Capital Inc. and investment advisory services through Kalos Management Inc., both at 11525 Park Woods Circle, Alpharetta, Georgia 30005, (678) 356-1100. Cornerstone Wealth Management is not an affiliate or subsidiary of Kalos Capital or Kalos Management.

About the Author

Jammie Avila, Registered Representative

Managing Partner/Co-Founder, Cornerstone Wealth Management

Jammie Avila is the managing partner/co-founder of Cornerstone Wealth Management in Las Vegas and Henderson, Nevada. Jammie has passed the Series 7 and 63 exams and is licensed to sell insurance products. Jammie and his wife, Danielle, have four children.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
Can AI Beat the Market? 10 Stocks to Watch

Can AI Beat the Market? 10 Stocks to Watch

An artificial intelligence (AI) system identifying high-potential equities has been sharp in the past. Here are its 10 top stocks to watch over the ne…
January 14, 2022


Final Estimated Tax Payment For 2021 Is Due Today
tax deadline

Final Estimated Tax Payment For 2021 Is Due Today

The deadline for submitting your fourth and final estimated tax payment for 2021 is here, so get your payments in now.
January 18, 2022
Why Women Need to Take a More Active Role in Their Financial Futures
Women & Money

Why Women Need to Take a More Active Role in Their Financial Futures

It’s a mistake to let someone else make all your decisions or take care of everything for you. You can start taking control of your finances by review…
January 17, 2022
What Are the Capital Gains Tax Rates for 2021 vs. 2022?
capital gains tax

What Are the Capital Gains Tax Rates for 2021 vs. 2022?

Which tax rate applies to your long-term capital gains depends on your taxable income. Rates for short-term capital gains are higher.
January 14, 2022
What's the Standard Deduction for 2021 vs. 2022?
Tax Breaks

What's the Standard Deduction for 2021 vs. 2022?

If you're like most Americans, taking the standard deduction on your tax return is better than claiming itemized deductions.
January 14, 2022