Fidelity Investments Lays Out Responses to Tax Reform

December 21, 2017 — 12:20 PM EST

The tax reform bill is about to be signed by President Donald Trump, and in addition to lowering the corporate tax rate to 21%, it could affect everything from charitable giving to how small businesses recognize revenue, not to mention temporarily lowering marginal tax rates for scores of Americans. With the reforms kicking off in 2018, Fidelity Investments laid out some steps that investors can take now to prepare for the coming changes in the tax code.

Take the estate tax for starters. According to Fidelity Investments, the legislation would double the federal estate tax exemption to $11 million per person or $22 million for couples. That increase would expire in 2025 and revert back to the current law. The state estate tax exemption is unaffected by the legislation, Fidelity Investments said.

"While a further increase in the estate tax exemption will help some families avoid this tax at the federal level, it remains important for all households to have a current estate plan that helps ensure their wishes are carried out and reduces the cost of transferring assets as part of an estate," said Kevin Ruth, head of wealth planning and personal trust at Fidelity, in a blog post. The brokerage firm said that, regardless of tax reform, investors should review their estate plan from time to time, and if the estate tax limit change is relevant, it makes sense to potentially change the strategy.

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On the investment front, Fidelity said that investors whose marginal tax rate will decline or those who will not itemize because of the higher standard deduction next year may want to consider making future charitable gifts, paying deductible medical bills and finding other deductible expense for the 2017 tax year to lower the income on which they have to pay taxes. Fidelity warned that the decision could become complicated, so consulting a tax expert may be the way to go. The tax reform bill also should prompt small business owners to reassess how their income is structured and the type of enterprise under which they are operating. "Depending on the size and particulars of your business, you may want to consider the benefits of incorporation or the creation of multiple small pass-through organizations," wrote Fidelity.

One thing that won't change under tax reform, which is welcome news to the financial services industry and American savers, is retirement savings accounts. Heading into negotiations over the bill, some had called for lowering the contribution limit on 401k(s), IRAs and other retirement savings accounts. That was not included in the final bill. The legislation also left alone the rule for health savings accounts. "This is the most sweeping tax reform package in decades," says Jim Febeo, senior vice president in Fidelity's government relations team, in the same blog post. "We are happy that the legislation preserved important retirement savings incentives and tax strategies for investors."