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Key tax figures for 2018

Bill Cass

Bill Cass , 01/23/18


Tax cuts are among many changes to the tax code in 2018 as a result of the recent tax reform.

The “Tax Cuts and Jobs Act,” passed in the final weeks of 2017, retains seven tax brackets but lowers the marginal tax rates in most of the brackets. On average, taxpayers are projected to see an 8% decline in federal taxes.

Taxpayers may want to consider determining their tax bracket as they move forward with financial planning. One resource that offers a snapshot of the tax code landscape is the tax rate schedule, recently released by the Internal Revenue Service. Putnam’s “2018 tax rates, schedules, and contribution limits” can be a useful reference to review with a financial advisor.

Multiple changes are also being made to tax deductions and exemptions.

Highlights include:

  • The mortgage interest-rate deduction is limited
  • The standard deduction is nearly doubled for individuals and couples
  • Deductions for state and local taxes are capped
  • Miscellaneous 2% deductions are eliminated
The estate tax lifetime exemption level is raised significantly, reducing the number of estates subject to the tax from an estimated 5,000 in 2017 to roughly 2,000 in 2018.

Taxpayers will be able to save more in employer-sponsored defined contribution retirement plans and health savings accounts due to increases in annual contribution limits.

Here are some planning ideas that could be part of a discussion of the tax rate schedule:

  • Investors may want to consider municipal bonds for tax-free income. Even with marginal rates declining, the 3.8% surtax on net investment income still applies.
  • Consider alternating use of itemized deductions for charitable donations. Investors may want to lump charitable deductions into one year and itemize those deductions on their tax return. In other years, claim the expanded standard deduction.
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About this blog

Financial-planning experts Bill Cass and Chris Hennessey weigh in each week with a range of insights about complex financial planning needs.

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