Michael J Porro & Company

Financial Advisors, LLC

180 Old Tappan Road, Old Tappan, NJ 07675-7052

Phone: 201-768-0218

Fax: 201-768-6487

Website: porrofinancialadvisors.com

July/August 2018

Tax Changes Affect All Ages

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When it comes to taxes and their effects, there are a multitude of strategies to fit individual circumstances. Yet, we can make some generalizations that address specific groups of people with varied tax and financial situations.

Knowing that you may want to work with an advisor to fine-tune any strategy, here’s a look at how the new tax law may affect different types of people.

Minor Children
Some parents like to give their minor children (and students under age 24) investments, because only the unearned income over a certain amount used to be taxed at the parents’ highest tax rate. The new tax law changes this, levying taxes at four trusts and estates rates. The highest bracket is 37%, with the threshold beginning on unearned income over $12,500.

TIP: Keep the unearned income at $2,550 or less annually, which is taxed at only 10%. If you’re giving minors investments to help build a college fund, consider opening and investing in a 529 plan under your name instead. Qualified distributions are tax-free and the plan, when owned by a non-student, has less of an impact on financial aid than accounts owned by the student.

Most Taxpayers
With lower income tax rates, you likely bring home more money from your employer now than last year. Check with a tax advisor to make sure you have the correct amount of money withheld each pay period. Too much is like giving the government an interest-free loan. Too little and you could be liable for additional taxes and a tax penalty.

TIP: Why not put that extra money you’re bringing home to good use? Put the extra cash into the aforementioned 529 plan for a child’s education.

New rules allow you to use it for qualified primary, secondary and higher education expenses, provided your state complies. Or consider pumping up your retirement funds by contributing more to a 401(k) plan at work or by opening and contributing to a traditional or Roth IRA (if qualified by income).

Highly Taxed Homeowners
If you’re a homeowner with high real estate taxes who also pays high state and local taxes, you may not be able to deduct the full amount. That’s because the new tax law limits these deductions to a combined total of $10,000. It also won’t help if you take out a jumbo mortgage in 2018 and beyond. Deductible interest is allowed only on the first $750,000 of first and second mortgages, including home equity and HELOCs (with restrictions). That’s down from $1 million in 2017.

TIP: If all things are equal, definitely consider how taxes may affect where you look for work or for a new home. If it is a high-tax state, you may want to lower your state tax bill by deferring more income to qualified retirement accounts.

Highly Affluent Taxpayers
With a doubling of the federal estate tax exemption, the new tax law has treated you well if you have considerable assets.

TIP: The estate and generation-skipping tax exclusion amount doubled to $22.36 million for couples and $11.18 million for individuals. Talk to an advisor if your taxable estate’s value exceeded the previous exemption but falls under the new one. Even if your estate exceeds the new exemption, remember that you and a spouse can gift up to $15,000 annually (up $1,000 from 2017) gift-tax-free to as many people as you like, lowering your taxable estate in the process.


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Michael J Porro & Company and LTM Client Marketing, Inc. are unrelated companies. This publication was prepared for the publication’s provider by LTM Client Marketing, an unrelated third party. Articles are not written or produced by the named representative.

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