We hope you are keeping warm during this chilly start to the new year!
One of the subjects that has been occupying our time as we begin the year is the recent tax reform that was passed and signed into law just before Christmas. We will be releasing several communications over the coming months about how different components of the bill could impact your situation, but we first wanted to share some thoughts on viewing taxes from a Biblical perspective.
TAXES- A MEASURE OF BLESSING
We often find that it is easy to become frustrated when tax season rolls around. Ron Blue, the founder of Kingdom Advisors, is one of the voices that has shaped our view on taxes. This quote from Ron provides a helpful starting point: “What we owe in taxes is directly related to the material blessing that we have experienced over the course of the prior year. If we can view taxes as an indicator of blessing in our lives, it might help to change the way we view them.”
GRATITUDE- THE SPOONFUL OF SUGAR THAT HELPS THE MEDICINE GO DOWN
Focusing on God’s financial provision in our lives helps to ground our thoughts when it comes to paying taxes. Being grateful for the benefits we receive from paying taxes, such as taking care of the seniors in our society, aiding the less fortunate, and living in a secure and free country helps us maintain a healthy perspective.
JESUS ON TAXES- “GIVE TO CEASER WHAT IS CEASER’S AND TO GOD WHAT IS GOD’S”
While focusing on God’s provision and being grateful for the benefits of paying taxes is helpful, it certainly does not mean we should pay more than required! Tax planning enhances our ability to more effectively steward the resources that God has placed in our care. Effective tax planning can take on many different forms depending on your situation. We will be sharing some techniques and strategies to take advantage of the new law in the months to come.
TAX REFORM OVERVIEW
That brings us back to the recent tax reform. The main objective of the new tax bill is to cut taxes and promote economic growth. The main engines being utilized to accomplish this objective are reducing most personal income tax brackets by about 2-4%, reducing the corporate income tax from 35% to 21%, and eliminating the corporate alternative minimum tax (AMT). While the changes on the corporate side are permanent, the changes for individuals will expire after 2025. At that time, Congress will either keep the changes in place, revert to the previous rates, or make new changes to the tax code.
The new tax law may or may not have a significant impact on your situation. Fortunately, most of the tax planning strategies that we have been utilizing will continue to be beneficial under the new system. In some cases, they will be even more beneficial. We have summarized some of the changes that might affect you personally below. Please be on the lookout for additional information from us about how these changes could relate to your situation.
Three Tax Reform Highlights that Impact Individuals and Families
COMBINING THE STANDARD DEDUCTION WITH PERSONAL EXEMPTIONS
In 2018, the standard deduction for married individuals is $24,000 (was $12,700 in 2017), and for single individuals it is $12,000 (was $6,350 in 2017). In concert with this change, the personal exemptions have been eliminated. The additional deductions for those over 65 have remained in place. One of the impacts of this change is that fewer people will now itemize their deductions. With the increased standard deduction, along with new limits and eliminations of certain deductions, we are expecting fewer people to clear the hurdle of having more itemized deductions than the standard deduction. There are potentially some opportunities to optimize your charitable giving with this change, which we will discuss in more detail soon.
INCREASING THE CHILD TAX CREDIT AND INCOME PHASEOUT LIMITS
This change was a late addition to the bill and one that will benefit many families. The child tax credit increased to $2,000, up from $1,000 in 2017. The phaseout changed from the current thresholds of $75,000 for individuals and $110,000 for married couples, up to $200,000 for individuals and $400,000 for married couples. For many families, these changes will lead to a lower tax liability.
BROADENING THE SCOPE OF 529 COLLEGE SAVINGS PLANS
There were many changes on the table for educationally related items, but many of them did not end up in the final bill. One of the changes that made the cut was allowing 529 distributions to be used for private elementary and secondary school expenses. There is a limit of $10,000 in distributions per student each year.