The Tax Cuts and Jobs Act was approved and is now the new law of the land.

While the majority of the media has covered the proposals for the changes as being a boon for the wealthy, they have missed discussing how the new tax laws affect most retirees.

The headlines are easy to read but as always, the devil is in the details. So let’s take a look at some of the things included in the new law that have not received much press.

Standard Deduction

Increasing the standard deduction from $6,350 to $12,000 for singles and $12,700 to $24,000 for joint filers will allow more than 90% of tax filers to do a short form return. As a result, the $10,000 cap on the combined state income taxes, real estate taxes and personal property taxes will not have an impact.

This is a positive for many who are retired as they will no longer have to deal with the cost and time spent preparing their long form income tax returns. What will have an impact is more likely the loss of the personal exemption for families with four or more children.

The current law allows $4,150 to be deducted for each dependent claimed, so that for a family of six the deduction would be $24,900. The refundable child tax credits will provide some relief but not to the extent of the exemptions for larger families.

Lower Tax Rates

Lower tax rates will be a benefit for many retirees as the majority of them will see a 3% to 4% reduction in their tax rates. There are still seven tax brackets but the new rates drop the most for the middle income families, those with taxable incomes between $50,000 and $300,000.

Medical Expenses

Medical expense deductions have been expanded. The new rules will affect the 2017 tax year by dropping the 10% of AGI to 7.5% of AGI and then making the 7.5% permanent going forward. This likely will have the biggest impact to seniors and the elderly, especially those who are in assisted care facilities.

Estate Taxes

Estate tax exemption is doubled so that only the very wealthy (top one tenth of one percent) will have to pay these death taxes.

Alternative Minimum Tax

Alternative Minimum Tax was not eliminated as promised, but it was significantly changed by increasing the exemption amounts by over $20,000. Also, it now includes a cost of living indexing on future exemption amounts.

Corporate Tax Rate

The corporate tax rate has been slashed from 35% to 21%. There is a bonus for retirees who are still working in their own business as the new rules affect ‘pass through’ businesses that include sole proprietorships, partnerships, LLCs and S-Corps by increasing the standard deduction to 20%.

There is a phase out for service professionals whose income is above $157,500 for singles and $315,000 for joint filers.

However, for all the retirees that continue to consult, or have created their own small business, this new law creates significant tax savings.

Divorce

Getting divorced? If your divorce is not final by the end of 2018, the new law may have an impact if you are receiving spousal support. There are many retirees getting divorced today, so this is going to become a major issue in future negotiations.

It is likely to have a negative impact to the lower income spouse (mostly women). My suggestion is to get as much of the income producing assets as possible and try not to depend upon spousal support.

Deductions

Among deductions that remain, and which will generally have an impact upon retirees, is the charitable deduction. The reduced mortgage interest deduction should have the least impact as many retirees have small or no mortgages.

If you live in the United States, how is the new tax law going to affect your retirement? How are you planning for your financial security in retirement? Please join the conversation below!

Stan CoreyStan Corey is a CFP, ChFC and CPWA providing financial life management for more than 36 years. Stan has published a novel, The Divorce Dance, which is a story about a divorcing couple whereby the wife, Natalie, guides the reader though the divorce process and how to have a respectful divorce. Please visit his website.

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