Financial and Estate Planning Opportunities Related to the New Tax Law

The Tax Cuts and Jobs Act (“The Act”) reflects a widespread change not seen in over 30 years. The architects of the legislation hoped this tax overhaul would allow a simplification of the US tax code. Unfortunately, what is clear since the bill’s signing is the additional complexity, and most provisions have taken effect immediately in 2018.
AAFCPAs Wealth Management provides the following general outline for clients and friends of the firm of some areas in The Act that affect financial and estate planning strategies. These factors, combined with increasing interest rates and ongoing geopolitical risks, will require financial planning vigilance in 2018.

Increase in Estate and Gift Tax Exemption

The federal annual exclusion for decedents who die or for gifts made after December 31, 2017, and before January 1, 2026 is $10,000,000 per individual and $20,000,000 per married couple, which is double the previously allowable amounts. These amounts are and will be indexed to increase annually with inflation. This effectively eliminates the estate and gift tax, generally payable at death, for the great majority of individuals and families. This provides an opportunity to pass a greater amount of wealth on to the next generations. We recommend that you revisit the language in your wills and trusts, and reevaluate the amounts and purposes of your life insurance. As noted above, these higher exclusion amounts sunset after 2025, and until then, the limits may change with a new administration. AAFCPAs Wealth Management recommends that clients take advantage of this new higher gift tax exclusion while possible. Remember, most states have their own estate tax (e.g. $1,000,000 exemption in MA), so planning is appropriate. The need for traditional planning utilizing various trusts is also very relevant for protecting your beneficiaries.

Mortgage Interest Deduction

Current homeowners are in the clear. Anyone buying a new home after December 15, 2017 will only be able to deduct interest on the first $750,000 of home acquisition, construction, or substantial improvement mortgage debt (down from $1,000,000). Interest on home equity loans will no longer be deductible for both new and existing loans. Previously, home equity interest was deductible on a principal of up to $100,000. If you refinance an existing acquisition debt, you may only deduct interest on the lower of the principal balance of the original debt or the new balance.


Under previous law, taxpayers had until the final due date of their tax return (usually October 15th of the year following the ROTH conversion) to essentially undo, or recharacterize the prior year conversion. This was advisable if the value of the account had fallen from the value you paid tax on at conversion in the prior year, or you decided you really did not want to pay all or some of the tax on conversion. This “do over” is no longer available as of December 31, 2017. The “backdoor ROTH” contribution technique is still available and can be a valuable way to contribute toward your retirement if your circumstances warrant.

Education Savings

IRS code section 529 plans are a common tax favorable way to save for education costs. Earnings on these accounts are tax free if used for higher education costs, as defined. The new law preserves the 529 plans, and now allows the plans to distribute up to $10,000 per year to cover the cost of K-12 expenses while enrolled in a public, private, or religious school. Prior to the Tax Cuts and Jobs Act, those costs could only be covered in a tax-preferred way by using a Coverdell Education Savings Account. Those accounts still exist, albeit with very low annual contribution limits and phase outs for AGI limits, but may now be rolled over into a 529 plan.

Capital Gains Rates

While ordinary income tax rates have changed across the board, there have been no changes to the federal rate on tax on long term capital gains and qualified dividends. Capital gains can be taxed at 0%, 15%, 18.8% and 23.8%, depending primarily on your tax bracket and level of adjusted gross income. The reduction in ordinary income rates can make the favorable lower capital gain rates somewhat less favorable.  AAFCPAs reminds clients that investment results should always be evaluated based on the net after tax returns. The changes in rate structures may affect asset placement strategies, and investment fees withdrawal strategies, among other considerations. Further, investment fees, which were deductible if paid from a taxable account, subject to a 2% of AGI floor and alternative minimum tax, are no longer deductible.
AAFCPAs continues to evaluate the changes noted above, as well as other significant tax changes for 2018 and beyond. We believe your investment and financial moves should be tied to your short and long-range plans and goals. That is the foundation for our investment and financial recommendations, along with clients’ unique tax situations.
If you have any questions about the integration of financial planning and investment management with tax and legacy considerations, kindly reach out to your AAFCPAs Wealth Advisor or Joel Aronson, CPA, PFS at 774.512.4114, Our mission is to provide valuable peace of mind to those who have the awesome responsibility to manage wealth.

About the Author

Joel Aronson, CPA, PFS
At the end of 2019, Joel Aronson retired from AAFCPAs after a distinguished 45-year career as Partner, Wealth Advisor, & Founder of AAFCPAs Wealth Management. Joel is nationally recognized for the impact of his work with nonprofit organizations. Throughout his career, Joel inspired many nonprofits to act and operate like for-profits. “I wish the term ‘nonprofit’ never came into existence,” said Joel. “I prefer the term ‘tax-exempt organization’ and believe it would influence the mind-set of management teams to expect and insist on driving profitable programs.” Joel co-developed and taught highly acclaimed courses in budget and financial management systems and participated in industry-wide forums as a highly-coveted trainer, lecturer and advisor. He will continue to contribute his financial management expertise as a Board member and advisor for organizations whose missions inspire him.