How new tax reforms impact investors and entrepreneurs

On December 22, 2017, President Trump signed the new tax reform, the Tax Cut and Jobs Act (TCJA) into law. This is a significant change in the tax law and will take several months to truly see the full effect of the act.

Most of the individual and estate and gift tax provisions will “sunset” on December 31, 2025 providing a potential window of opportunity to take action before they revert back. As always you should consult a tax professional about your particular situation.

Below, we’ve summarized some of the most impactful provisions to investors and entrepreneurs, and provided practical actions for you to consider.

Individual Income Taxes

Change Consideration
Brackets and Rates. Maintained seven brackets but broadened brackets and lowered rates. Top rate of 37% @ $500,000 for individual and $600,000 for married filing jointly. Review withholdings to match change in brackets and rates
Limitation on State and Local Taxes (SALT) to $10,000 aggregate amount for both state and local income and property tax deduction Consider converting vacation homes to rental property which would allow deduction of property taxes and mortgage interest.
Charitable gift deduction retained. Increase limit of cash contribution from 50% of AGI to 60% of AGI. 5 year carry forward provisions retained. Consider “bunching’ multiple year charitable contributions into one year in order to exceed the standard deduction hurdle ($12,000/$24,000). Using this technique along with a Donor Advised Fund provides for more flexibility in making grants to the charities of your choice.
Retained Alternative Minimum Tax (AMT) for individuals but increased exemption amount $73,600/$114,600 and increased phase out threshold to $523,600/$1,047,200. With these changes and with the loss of a significant amount of deductions it is expected that fewer taxpayers will be susceptible to the AMT. Consider whether or not this will affect your ability to exercise ISO’s (Incentive Stock Options) without paying AMT. The change in deductions this year may mean many people previously caught by AMT are no longer in AMT.
Roth Recharacterization. Elimination of ability to recharacterize Roth conversion for taxable years after 2017. Consider whether advantageous to recharacterize Roth conversion. You may be able to recharacterize up until the October 2018 return filing deadline.

Other Individual Income Tax Changes:

  • Retained Net Investment Income Tax (NIIT) “Obamacare” surcharge of 3.8%.
  • Increase of Standard deduction to $12,550 for individual and $25,100 for married filing jointly. Repealed the personal exemption.
  • Increase of Child Tax Credit to $2,000 per child with a phase out beginning @ $200,000/$400,000.
  • Repeal of most Miscellaneous Deductions (2% of AGI deductions)

Estate and Gift Taxes

Change Consideration
Doubled the Lifetime Estate and Gift tax exemption to $11.7 million for an individual and $23.4 million for a married filing jointly. Portability of unused portion of exemption is retained. Consider using the increased exemption amount to make gifts to transfer assets out of your estate prior to sunset of increased exemption amount. Consider use of Non-Reciprocal Spousal Lifetime Access Trusts (SLATs) as vehicle for transfers.
Retained Stepped-Up Basis for assets transferred at death. Consider benefits of basis maximization by transferring or “swapping” low basis assets to take advantage of stepped up basis provision at death.
Annual gift tax exemption increases from $14,000 to $15,000 per donor per done ($30,000 if split gift for married couple). Consider review existing estate planning documents on a regular basis. Formula provisions may need to be revised based on new exemption amount. Adjusting 529 plan contributions
Generation Skipping Tax (GST) is doubled to $11.7 million for an individual and $23.4 million for married couple. No portability for GST. Consider review of GST trusts and allocation to take advantage of increased exemption amount.

Corporate and Business Taxes

Change Consideration
Pass Through Entities. This is a complex provision. Certain pass through entities (LLPs, LLCs, Sub-chapter S corps., Partnerships and Sole Proprietorships) are eligible for a 20% deduction of taxpayer’s “qualified business income”. Personal service entities such as lawyers, accountants, health consulting, financial services and performing arts are subject to an income limitation of $163,300/$326,600 (2020 numbers). Consider/review business entity choice for investments and business structures.
Corporate Tax (C Corps) reduced to 21% flat rate. No brackets. Corporate AMT is repealed. Consider if C Corp is more favorable for entity structure for new businesses.

Key 2018 Annual Limits Relating to Financial Planning *

Elective deferrals 401(k), 403(b), etc.
Catch-up contribution (for age 50+)
IRA or Roth IRA contribution limit
Catch-up contribution (for age 50+)
$1,000 (no change)
SEP IRA contribution maximum (limited to 25% of income) $58,000
Roth IRA phase out (single)
Roth IRA phase out (married filing jointly)
$198,000-$208,000 joint
Social Security wage base $142,800
Annual gift tax exclusion $15,000 (up from $14,000)
Gift Exclusion to a non-U.S. citizen spouse $157,000 - 2020, $159,000 - 2021
Estate/Gift/GSTT tax lifetime exclusion $11,700,000
$23,400,000 married
Maximum estate tax rate 40%
Highest marginal fed. income tax rate (37%)—Single $523,600
Highest marginal fed. income tax rate (37%)—Married $628,300
Long term capital gains rates (Jt. Filer: $80,800 /$501,600 />$501,600) 0%/15%/20%
Personal exemption Eliminated in 2018
Standard Deduction Single/Married filing Jointly $12,550/25,100
Mortgage interest deduction Limit (principal residence only) $750,000
SALT deduction limitation (state & local taxes) $10,000 combined
Child Tax Credit (phase out at $200,000/$400,000 Individual/Joint) Fully refundable $3000 per eligible child under 18 ($3600 per child under 6)
Itemized deduction phase-out Repealed
Kiddie tax limited standard deduction $1,100
Alternative Minimum Tax (AMT) exemption—Single/Married $73,600/$114,600
Flexible Spending Account $2,750
For California Residents: CA College Access Tax Credit Fund** 50%


Top of mind for investors this year should be reviewing existing and new entity structures and from a personal point of view taking advantage of the increased gift tax exemption.

Entrepreneurs should re-visit personal taxes and AMT with their tax professional which may allow them to exercise ISOs without additional tax consequences. They should also be aware of the new rules relating to option plans and the ability for employees to defer taxes.

Because of the new tax changes, many traditional planning constructs will need to be rethought. The increase in the exemption amounts does not obviate the need to continue to plan for income taxes, asset protection, divorce, business continuity and potential future changes to income and estate and gift tax law.

These changes can be complicated and we would be happy to work alongside your legal and tax professional prior to making any decisions.

Updated October 2021

The Fine Print

Lawrence Crickenberger

Larry Crickenberger is a VP, Financial Planning Specialist with SVB Private, where he provides guidance on estate tax, insurance and financial planning issues and helps identify strategies that apply to the unique needs of Founders, VC/PE Investors and Executives. Larry also works to identify a network of financial planning professionals to assist our clients in implementing these strategies, including attorneys, CPAs and insurance professionals.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein