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Navigating Liquidity Events: Key Insights for IPOs, M&As and Buyouts
December 21, 2017
Congress delivered on its promise to send a sweeping tax reform bill to President Donald Trump by Christmas. Although there was broad agreement between the House of Representatives and Senate going into deliberations, a number of changes were made during the reconciliation process. Nevertheless, it doesn’t change our view that for end-of-2017 planning, you should accelerate deductions and defer income in most cases. Of course, reach out to your wealth manager soon to be certain for your own situation.
Below is a summary of the final Tax Cuts and Jobs Act for individuals and corporations, which awaits the president’s signature.
| Tax Rate* | Single | Head of Household | Married Filing Jointly |
| 10% | $0-$9,525 | $0-$13,600 | $0-$19,050 |
| 12% | $9,526-$38,700 | $13,601-$51,800 | $19,051-$77,400 |
| 22% | $38,701-$82,500 | $51,801-$82,500 | $77,401-$165,000 |
| 24% | $82,501-$157,500 | $82,501-$157,500 | $165,001-$315,000 |
| 32% | $157,501-$200,000 | $157,501-$200,000 | $315,001-$400,000 |
| 35% | $200,001-$500,000 | $200,001-$500,000 | $400,001-$600,000 |
| 37% | $500,001+ | $500,001+ | $600,001+ |
Above $500,000 for individuals and $600,000 married filing jointly.*
Reduces penalty to $0.
Increases exemption to $70,300 (single) and $109,400 (MFJ) with phase-out at $500,000 (single) and $1 million (MFJ).*
Introduces three-year minimum holding period.
Increases to $2,000 per qualifying child and $500 per non-qualifying child with phase-outs at $200,000 (single) and $400,000 (MFJ).*
No change to current law.
Doubles estate and gift tax exemption to $11 million. Maintains portability for surviving spouse. Retains step-up in basis and 40% tax rate.*
Expands to include public, private and religious (K-12) primary and secondary schools, with a $10,000 per student annual limit.
Creates a deduction equal to 20% of qualified business income. The deduction cannot exceed the greater of (1) 50% of W-2 wages paid by the business or (2) 25% of those wages plus 2.5% of unadjusted basis of depreciable property. Personal service-related businesses, except for engineering and architecture, will generally not qualify for the deduction unless the taxpayer’s income is below certain taxable income thresholds ($157,500-$207,500 single, $315,000-$415,000 MFJ). Within those limited ranges, the deduction for the service-related business income will be phased out. The 50% and 25% wage limits are phased in over those same tax taxable income ranges.
Repeals.*
Repeals ability to recharacterize Roth IRA conversions back to traditional IRAs.
Doubles to $12,000/$24,000 (single/MFJ).*
No change to current law.
21% effective 2018.
Repeals.
Increases eligibility from $5 million to $25 million.
15.5% of untaxed repatriated profits in liquid assets and 8.0% of untaxed repatriated profits in illiquid assets.
100% expensing of capital expenditures excluding utilities (phases out from 2023 to 2027). Qualified property must only be new to taxpayer and not new in general.
Bars any deduction for any activity generally considered entertainment, amusement or recreation.
Limited to business interest income plus 30% of adjusted taxable income (ATI). Depreciation and amortization expenses are added back to ATI until 2021. Businesses with average annual gross receipts less than $25 million in prior three years are exempt.
Territorial system (100% exemption).
Repeals for non-real estate transactions.
No change to current law.
Aspiriant’s wealth and investment managers will continue to analyze the tax changes and explain what they may mean for you in future articles. So be sure to check fathom regularly for more information.
*Changes expire at end of 2025.
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