Tax plan: Everything financial advisers need to know about the final bill

The latest version has many changes from current law that would affect advisers and clients

Dec 18, 2017 @ 2:22 pm

By Greg Iacurci

After days of negotiations, Republican leaders aim to present a final tax bill to Congress for a vote this week, in hopes of getting it to the president's desk for signature by Christmas.

The bill — the Tax Cuts and Jobs Act — reconciles some of the substantial differences in the Senate and House legislation, and contains some important provisions for financial advisers and their clients.

Here are the bill's highlights for financial advisers, reflecting the 2018 tax year. Most changes on the individual side would revert to current law after 2025 unless extended by Congress.


The plan maintains the current seven marginal income tax brackets. There are several changes, including a cut to the top rate. Here are the breakouts:


10% ($0-$9,525); 12% ($9,525-$38,700); 22% ($38,700-$82,500); 24% ($82,500-$157,500); 32% ($157,500-$200,000); 35% ($200,000-$500,000); and 37% ($500,000+).

(Current law: 10% ($0-$9,525), 15% ($9,525-$38,700), 25% ($38,700-$93,700), 28% ($93,700-$195,450), 33% ($195,450-$424,950), 35% ($424,950-$426,700) and 39.6% ($426,700+)).


10% ($0-$19,050); 12% ($19,050-$77,400); 22% ($77,400-$165,000); 24% ($165,000-$315,000); 32% ($315,000-$400,000); 35% ($400,000-$600,000); and 37% ($600,000+).

(Current law: 10% ($0-$19,050), 15% ($19,050-$77,400), 25% ($77,400-$156,150), 28% ($156,150-$237,950), 33% ($237,950-$424,950), 35% ($424,950-$480,050) and 39.6% ($480,050+)).


The bill provides a 20% tax deduction for pass-through income. Pass-through businesses, such as partnerships, S corporations and sole proprietorships, are ones in which the owners pay their business taxes on their personal tax returns.

However, there are some limitations: The 20% deduction is capped at the greater of: (a) 50% of wage income paid to employees and reported on a W-2, or (b) 25% of wage income plus 2.5% of the cost of tangible, depreciable property owned by the business. Further, the deduction generally doesn't apply to several service businesses, such as those in financial and brokerage services.

These limitations don't apply to those with income less than $157,500 for individuals and $315,000 for couples. The limitations phase in over a $50,000 range ($100,000 for couples).


Long-term capital gains tax rates remain the same, at 0%, 15% and 20% (plus a 3.8% tax on net investment income for high-income taxpayers). However, the income breakouts are slightly different from current law: 0% (applies to taxable income of less than $77,200 for couples); 15% (over $77,200); 20% (over $479,000).

Also, the controversial "first-in, first-out" (FIFO) provision from the Senate bill isn't in the final bill.


The bill preserves the AMT, which ensures individuals pay a minimum level of tax, but increases the exemption level so the tax would apply to fewer individuals. The bill raises the exemption amount to $109,400 for couples (from $86,200) and $70,300 for singles (from $55,400).

The exemption phases out after $1 million for couples and $500,000 for singles (up from $164,100 and $123,100, respectively).


Doubles the estate-tax threshold. The 40% tax would apply to estate values above $11.2 million for individuals, and $22.4 million for couples.


Caps the deduction for interest on mortgage debt of $750,000 for homes purchased after Dec. 15, 2017. Existing mortgages are grandfathered under the bill, meaning they would retain the current $1 million cap.

Eliminates interest deduction on home-equity loans.


Taxpayers can deduct up to $10,000 in state and local taxes. (There's currently no cap.) They may choose how to use the deduction, through a combination of property and sales or income taxes. The threshold isn't indexed to inflation.


All taxpayers may claim a deduction for unreimbursed medical expenses if they exceed 7.5% of adjusted gross income, a reduction from the current 10% (meaning more people would qualify).

The reduction only applies for the 2017 and 2018 tax years, and would revert to 10% thereafter.


Eliminates the ability to recharacterize a Roth conversion. Current law allows investors who convert a traditional IRA to a Roth account to undo that conversion within a certain time frame.

However, the bill wouldn't prevent an investor from recharacterizing a contribution to a Roth or traditional IRA.


Doubles standard deduction to $12,000 for individuals (from $6,350) and to $24,000 for married couples (from $12,700).

However, the bill also eliminates the personal exemption. The exemption reduces taxable income, beyond the standard deduction or itemized deductions, by $4,150. It phases out beginning at taxable income of $266,700 for singles and $320,000 for couples.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Here's how we came up with our list of undiscovered talent in mutual funds

Senior columnist John Waggoner talks with assistant managing editor Susan Kelly about how hard work, curiosity and passion landed some fund managers on our list.

Latest news & opinion

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.

SEC advice proposal unveiling: Here's what to expect

Chairman Jay Clayton will initiate momentous action Wednesday, as the commission meets to debate a rule on broker and adviser standards.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print