The Tax Cuts and Jobs Act is now the law of land. While still in its infancy, taxpayers and experts alike are struggling to figure out the many implications of the far-reaching tax reforms.

With all the confusion over the changes and whether they may, or may not impact any given taxpayer, who will they turn to but their CPAs or other financial advisors? Therefore it is incumbent on financial advisors to understand how the new laws impact themselves, as well as their clients.

The experts at MBAF have been taking a professional and unbiased approach to analyzing the impacts of the new law, and we have produced what we believe to be the “Top Ten Takeaways” from the Tax Cuts and Jobs Act (The Act) for financial advisors.

  1. Investment Fees and Expenses are no longer deductible as miscellaneous itemized deductions subject to the 2% floor.
  2. With fewer individuals electing to itemize, the qualified charitable donation becomes a more viable option for lowering tax obligations. For those taxpayers older than 70 1/2, they can make a Qualified Charitable Distribution (QCD) directly from their IRA to a charitable organization, by using a portion of their required minimum distribution to pay for the charitable donation directly. The taxpayer could then exclude the QCD from their income completely, rather than including the income and creating an itemized charitable donation, which otherwise may not be utilized if the taxpayer is a non-itemizer.
  3. Qualified employees (those who own less than 1% of shares, or who are not the CEO, or CFO) of a privately held company, may defer the recognition of income tax (not FICA or FUTA) attributable to the gains from the exercise of qualified stock options for up to five years.
  4. The Act eliminates the ability for taxpayers to recharacterize a Roth IRA conversion.
  5. The Act did not change the ability for a taxpayer to convert a Nondeductible IRA to a Roth IRA. There are still no income limitations for this conversion.
  6. The Act did not repeal the 3.8% net investment income tax.
  7. The Act retains the 0%, 15%, and 20% capital gains tax rates.
  8. The Act repeals the 3% Pease phase out on itemized deductions for high income taxpayers. This could greatly benefit charitably inclined high net worth taxpayers.
  9. The Act doubles the estate and gift tax exemptions from $5,000,000 to $10,000,000 indexed for inflation. In 2018, the amount is $11,200,000.
  10. The Act repeals the deduction for entertainment and certain meals as of 2018. Additionally, financial advisors, who are employees, will no longer be able to deduct unreimbursed expenses attributable to the trade or business of being an employee as a miscellaneous itemized deduction subject to the 2% floor.

Barring further action from congress, most of the individual income tax changes are temporary, effective from January 1, 2018 through December 31, 2025.

How MBAF Can Help

Of course, this list is only a brief snapshot of what financial professionals need to be aware of in the new law.

While there are aspects of simplification for some, there are new, added complexities for entrepreneurs and business owners. Since tax season is upon us, now is the time for any financial advisor to be sure they are entirely up to speed and understand how to maximize the potential benefits to be found in this tax legislation for their own income tax situations, as well as to better advise their clients.

Even if you understand the implications of our “Top Ten Takeaways” from the TCJA, there may be options and opportunities that the new reforms create that you may not be aware of. We can help you answer any questions you may have regarding the Tax Cuts and Jobs Act.

Compliance with and understanding the changes in the tax codes regarding the Tax Cuts and Jobs Act can be complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting Specialists, or call us at 1-800-239-1474.