On December 20, Congress passed the Tax Cut and Jobs Act, the most sweeping tax reform since 1986. I am writing to mention a few highlights of the Act.
The estate, gift and generation-skipping transfer tax exemption will increase from $5,490,000 in 2017 to $11.2 million per person in 2018. The exemption will be adjusted each year until 2026 based upon inflation. In 2026, the exemption will be divided in half (i.e., it will be approximately $6 million, depending upon inflation between now and 2026). In order to benefit from this temporary increase in the exemption, you must either die during the eight-year period (2018 through 2025) or make large taxable gifts during that time period. Who dreams up these crazy laws!
The income tax rates for individuals, estates and trusts have been lowered, including the top bracket of 39.6% being reduced to 37%. The top income tax rate for C corporations will be reduced from 35% to 21%.
Individuals, trusts, and estates will receive a 20% income tax deduction for qualified business income from pass-thru entities such as LLCs, S Corporations, Partnerships, and REITs. There are significant limitations that apply to income from certain pass-thru entities that are personal service businesses.
The deduction for qualified business income and the changes in the income tax rates for individuals, C corporations, and trusts and estates will apply for an eight-year period starting in 2018.
The changes made by the Act have enormous planning implications, especially for owners of closely-held businesses. Between now and year end, you should consider accelerating certain deductions and deferring income when possible. If you want to accelerate future charitable gifts to 2017, you can temporarily fund a donor advised fund or private foundation.