How the New Tax Law Impacts Investors

Countless hours have been spent tabulating the political pros and cons of Donald Trump’s long-sought tax reform, which was signed into law at the tail end of 2017. While much of the partisan discord over the bill has faded, there remain a lot of open questions about how the bill will impact everyday Americans—including investors.

A Sweeping Overhaul

Certainly, it is no exaggeration to call the tax bill significant. Whether you love or hate it, no one can deny that its impact is massive—with total long-term implications of more than $1.4 trillion.

But what does the tax bill do, exactly? Among the big takeaways:

  • It slashes the corporate tax rate—previously 35 percent, now just 21 percent. Concurrently, it allows business owners to take a 20 percent deduction on their income.
  • Taxpayers will benefit from an immediate increase to the standard deduction, which has almost doubled to be $12,000 for individuals, $24,000 for couples.
  • The new tax brackets are all slightly lower than they used to be; what’s more, many American workers will be shifted into a lower tax bracket.

Adding to some of the uncertainty over the tax bill and its implications is the fact that some of these provisions are set to be phased out or modified as time goes on—changes that future Congressional classes may or may not allow.

What Tax Reform Means for Investors

These are just a few high-level bullet points from a tax code overhaul that’s massive in its scope, and will surely come with many long-term ramifications. For now, though, what should individual investors know about this new law?

For the most part, the news for investors is favorable. It was long feared that the GOP’s tax reform efforts would undermine some of the more popular rules for 401(k) and IRA accounts, but thankfully these fears were ill-founded.

The first thing investors should do, as they seek to make sense of the new tax law, is take a look at last year’s tax returns, and figure out whether there’s been a change to your tax rate or to your ability to itemize. (Our financial planners can help you make this determination if you need us to.) If your tax situation has changed, you may wish to make some changes either to your future contributions (i.e. charitable giving) or your deductions (i.e. medical deductions).

Specifically, many investors will benefit from making charitable donations less frequently, but in higher amounts; this allows for a higher amount to write off when you do your taxes.

Something else to consider: If you’re withdrawing from a retirement account, your withdrawals count as income; you’ll want to monitor and possibly change your withdrawal amounts to keep from moving into a higher tax bracket.

We Can Guide You Through These Changes

If you have further questions about the tax bill and what it means for you, we’d be happy to answer them. At Stonepath, our advisors have been studying these new laws diligently, and we’re ready to offer individualized counsel on how you can use this tax reform most advantageously. To schedule a consultation with one of our advisors, please reach out to Stonepath Wealth Management today.