On February 6, 2019

New tax cuts benefit mainly businesses

By Kevin Theissen

Tax Cuts and Jobs Act

The nature and shape of the nation’s tax system inevitably influences the everyday decisions made by individuals and businesses alike. After the implementation of one of the most comprehensive reforms in over a generation, it is essential to review certain financial and investment strategies.

For millions of Americans and businesses it means an altered financial and investment landscape with new opportunities and challenges in the years ahead. Keep in mind, however, that the information in this material is not intended as tax advice and may not be used for the purpose of avoiding any federal tax penalties.

Business takes center stage

Businesses may begin benefiting from a number of changes, including:

Reduction in the top tax bracket from 35 percent to 21 percent;

Full and immediate expensing of capital investments (phased out after five years);

Implementation of a territorial tax system that taxes only income earned within the U.S.;

Special one-time tax on repatriation of foreign earnings;

Repeal of corporate Alternative Minimum Tax; and

A 20 percent deduction of qualified business income from certain pass-through entities. Service industries (e.g., health, law, professional services) are generally excluded, except where income is below $315,000 for joint filers and $157,500 for other filers.

Business owners should consider meeting with a tax professional to understand the impact of these changes on employee benefits, business investment, and corporate structure.

Shifting landscape

The changes in tax law may affect companies differently, which could shift where future investment opportunities may be found.

For instance, the lower tax rate may be more meaningful to higher-taxed industries, which can include certain retail, healthcare and telecom firms. Real estate investment trust companies also may benefit from the new pass-through deductions and exclusion from the new limit on interest deductibility of 30 percent of net income.

Conversely, with the changes made to individual taxation (see below), there may be a negative impact on home builders and real estate sales agents, while highly leveraged businesses potentially may burdened by the new cap on interest deductibility.

Overall, the tax cut is projected to increase corporate profits, with many Wall Street analysts lifting their 2018 earnings forecasts anywhere from seven to 10 percent. This may not only justify current stock valuations, but may influence prices going forward.

Past performance does not guarantee future results. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Changes for individuals

The Tax Policy Center projects that taxes will fall for all income groups and result in an increase of 2.2 percent in after-tax income. The Tax Policy Center also cautions, however, that some individuals and households may see a higher tax bill.

Highlighted below are some of the major changes:

Reduction in most marginal income tax brackets;

Near doubling of the standard deduction;

Elimination of personal exemption;

A $10,000 cap on the state and local tax deduction;

An increase in the child tax credit and the expansion of eligible families

Mortgage interest deductibility limited to mortgages up to $750,000 (reduced from $1 million)

Medical expenses deductibility will kick in at 7.5 percent of income, down from 10 percent

529 plans may now be used to fund elementary and secondary education

Alternative Minimum Tax is curtailed;

401(k) borrowers will have more time to repay plan loans when leaving an employer

Elimination of the ability to “undo” a Roth conversion.

These tax changes may have wide ranging impact on the financial choices you make. For example, you may want to consider the best use for your additional after-tax income.

Estate taxes

The estate tax exemption was raised to $11.2 million, a doubling of the $5.6 million that previously existed. As such, individuals benefiting from this change may want to re-evaluate the strategies they have in place to address the tax and liquidity issues that may no longer exist.

Kevin Theissen is the owner of Skygate Financial Group in Ludlow.

Do you want to submit feedback to the editor?

Send Us An Email!

Related Posts

 What’s in a name?

June 25, 2025
There’s nothing like a talk show to spark an idea for a column. Hosts Kelly Ripa and her husband, Mark Consuelos, recently discussed how people’s first names often serve as clues to the decade in which they were born. Some names that are rarely chosen today were popular in previous decades.  The given name that…

No patch left unskied

June 25, 2025
I’m calling it.   I drove around the long way, hoping to catch one last glimpse of the patch before we actually began hiking up into The Canyon. Partly because I wanted to see what I was getting into and partly because I wanted to make sure she was still there. I honestly wasn’t sure…

Pack up your troubles

June 25, 2025
The longest day of the year has officially come and gone, which means we are now on the slow, downhill slide toward winter.  Given that the days are currently long and the temperatures are nearing their peak, my family has opted for the traditional summer beach vacation. This is nothing new since we’ve rented a…

Life in a shell: eastern box turtle

June 25, 2025
As a budding naturalist growing up in the concrete-heavy environs of Boston, I would regularly thumb through my family’s collection of nature books and daydream about the creatures within. One species I was particularly drawn to was the eastern box turtle. These charismatic terrestrial turtles have high-domed shells festooned with colorful yellow or orange markings…