When new federal tax laws are enacted, it takes a full year for taxpayers to understand just how those new tax laws impact their lives.

That year has passed, and most Americans have prepared their tax returns. In so doing, many of them found that their tax return results differed from those in 2017 and prior to that, some in substantial ways.

The new tax law was put into effect in December of 2017, creating new tax brackets for 2018 and beyond. The individual tax bracket changes are only in effect for seven years. The top individual tax rate was dropped from 39.6 percent to 37 percent after deductions and exemptions, and the highest tax bracket starts at $500,000 for individuals and $600,000 for couples.

The corporate tax rate was the more significant change, dropping from 35 percent to 21 percent beginning in 2018. Those tax cuts were enacted to be permanent.

In its monthly survey of investors with a net worth between $100,000 and $25 million (not including the value of their primary residence), Spectrem asked just how the new tax laws impacted tax returns for 2018. The answers demonstrate a wide range of responses.

There are three positive responses to the change in tax laws: a larger refund, a smaller tax bill, or a refund for the first time in years. Only 22 percent of investors reported one of those three positive results from the new tax laws.

There are also three negative results to the new tax laws: a smaller refund, a larger tax bill, or having to pay taxes for the first time in years. Among those choices, 36 percent of investors reported such an occurrence.

However, the converse result was reported for investors with a net worth between $15 million and $25 million, the wealthiest investors in the survey. Forty-four percent of those investors reported a positive outcome from the new tax laws while only 20 percent reported a negative result.

The follow-up questions included explanations for the change in tax results, as well as investors’ opinions about whether the new corporate tax law impacted their individual returns. The results of those questions can be read on the Hot Topics dashboard in Spectrem's Wealthy Investor Series package of investor research.

Perhaps the most telling question and answer came when investors were asked, in general, whether the new tax laws were beneficial to their household finances. Almost 60 percent said “no" while 42 percent said “yes”. There were interesting differences in that response based on wealth, age and working status.

 

 

©2019 Spectrem Group