Advancement is a brand new podcast from the Office of Advancement. Planned Giving Officer Keith Johnson helps listeners understand financial principles, and establish practical and godly wealth management habits.
You can stream the podcast below, download and listen to it later, or subscribe to Advancement on iTunes, Google Play, or your favorite podcatcher so you never miss an episode and can enjoy the show wherever you go!
Did you know that a recent poll showed that 58% of Americans would rather talk about politics than their finances?
Hi, my name is Keith Johnson. I serve as Planned Giving Officer at Cairn University and also The Regency Foundation. Welcome to our first wealth planning podcast. Each month we will be delivering a series of podcasts providing some practical ideas on how to establish Godly wealth management habits into your life. My hope is you will discover some financial planning strategies, based on God’s Word that will prove valuable for you and your family.
Before we get in to today’s topic, let me give you some of my background. For more than 20 years my wife and I owned an Investment Advisory firm in Pennsylvania where we provided financial advice to clients throughout the region. In late 1999, we sold the firm to a Bank. I then worked for several major companies where I was responsible for training several thousand financial advisors around the country. Immediately prior to joining the staff at Cairn University, I worked for Charles Schwab & Co in Denver, CO, managing a Private Client team.
Throughout my career I have focused on wealth management issues that most people face in their lifetime. I thought it appropriate to begin our podcast series with Income Tax Planning.
By now you have likely heard that the President signed into law the Tax Cuts and Jobs Act of 2017. This new legislation revises many provisions in the law we have lived with for the last 30 years. My purpose today is to highlight some of the more important things that will likely impact not only our alumni, but also parents of current students and friends of the University.
As we begin, it is important to emphasize that this podcast is not designed to offer tax advice, but to simply provide some basic education. You should always seek advice from a qualified tax professional regarding your own personal situation.
A major portion of the new tax law deals with corporate income taxes. For our purposes, I will skip over most of these changes except to say that the corporate tax rate in the US has been reduced from 35% to 21% starting in 2018. This has already had a significant impact on our economy including jobs growth, wage increases and very positive stock market performance.
In this podcast I want to focus more on the provisions that touch us as individuals.
- The first major change is in the actual tax brackets themselves. As of January 1, 2018, most tax brackets have been reduced by several percentage points or more. This will result in tax savings for most people.
As an example: The 15% tax bracket has been reduced to 12%. The 25% bracket is now 22% and the 28% bracket drops to 24%.
This means most people will pay less income taxes this year. In fact, you will likely see an increase in your take home pay in the next month or two as companies get the new withholding tables applied to their payroll systems.
- Another area of change is in the Standard Deduction. The standard deduction has almost doubled. If you are married and file jointly, the standard deduction will now be $24,000; for single filers, it will be $12,000. This expanded deduction simplifies tax filing for many families. It is estimated that 9 out of 10 taxpayers will simply claim the new standard deduction and will no longer need to itemize their deductions.
This change will also mean that people who are low income earners will pay no income tax at all.
- The third major area of change in in the Child Tax Credit. The child tax credit for 2018 is doubled from the 2017 level of $1,000 to $2,000 per child. The new larger credit will not begin to phase out for married filers until they reach incomes of more than $400,000. This is a substantial increase from $110,000 under current law. It’s important to note that this replaces the personal exemptions we received in the past.
For any family in the 25 percent tax bracket or lower, this is a decrease in your taxes for those with children.
Hey – it’s not too late to add another child to your family this year. That would get you an extra tax credit. Hey that also gives Cairn University another potential student in the future.
Sorry, I digressed…
- State and Local Tax Deduction. This issue has been in the press a lot in recent months. Taxpayers who itemize will be able to deduct up to $10,000 of state and local property taxes, income taxes or sales taxes paid. There was a hot debate in congress over this issue as representatives from high tax states such as New York and New Jersey wanted their residents to be able to deduct state taxes on their return. Congress came to a compromise by allowing $10,000 to be deducted.
In the future, its possible Congress just might eliminate all state and local tax deductions as well as the tax free interest on municipal bonds, so stay tuned.
- Mortgage Interest Deduction. Interest paid on mortgages up to $750,000 will remain deductible for your primary residence if you are still able to itemize your deductions. The new rules lower the threshold from the 2017 law of $1 million.
It is important to note, the new law no longer allows one to deduct interest on a second home.
- Charitable Deduction Expanded. The charitable deduction expands for those who itemize their returns, from 50 percent of income in 2017 to 60 percent beginning 2018. For those who give a substantial amount to charity each year, this will be a significant benefit.
Some critics think that charitable giving will go down, but our experience tells us that people who give to Christian charities are giving out of a motive that goes well beyond a tax deduction. They give because they have a heart for giving.
- The IRA Charitable Rollover was RETAINED
You might find it interesting that the charitable deduction is denied for payments made in exchange for seats at college sports games.
- Other Itemized Deductions. It will be very important to be careful in this area because many items have been changed. Itemized deductions and exclusions for medical expenses and teacher spending, for example, are retained. The bill also expands the deduction for medical costs for the next two years for expenses that exceed 7.5 percent of adjusted gross income, down from the current-law level of 10 percent.
The original House-passed version of the bill eliminated all of these deductions but the final bill signed into law retained them.
STUDENT AND FAMILY BENEFITS
- 529 College Savings Accounts have been expanded under the new Internal Revenue Code. Parents are now allowed to save for funds in a 529 Plan for K–12 educations and even homeschooling expenses. The reform increases the ability of parents to pay for education options outside the public school system, giving families more education choices.
- Student Loans
- Student Loan Interest Deduction was RETAINED.
- The American Opportunity Tax Credit was RETAINED
- Lifetime Learning Credit was RETAINED
- IRC Sec. 127 – employer-provided tuition assistance – was RETAINED.
- Death Tax Remains. The basic exclusion from estate taxes doubles from its current $5.6 million per person to $10 million base indexed for inflation. Including the inflation index it looks like people can shelter $11.2 million each in 2018. That means a married couple can shelter close to $22.4 million from Estate Taxes if proper estate planning is done. That will obviously significantly reduce the number of people that will be subjected to that dreaded tax. But remember, this changes back to $5 million in 2026. So, if you are wealthy, you should do some serious planning now.
The annual gift exclusion is $15,000 per person this year so gifting up to this amount to your children and grandchildren will continue to reduce your estate taxes.
It is important to note this does not necessarily impact state taxes. There are many states including Pennsylvania, that tax you the privilege of dying.
I know we have covered a lot of topics quickly. At Cairn University and The Regency Foundation we want to be a valuable resource of information and ideas you can use in a practical way. To that end, I am pleased to announce that we are offering one hour of financial planning consultation at no charge to you. If would like to take advantage of that benefit or if you have any questions, feel free to contact me by email at email@example.com.