TAX CUTS AND JOBS ACT SUMMARY

TAX CUTS AND JOBS ACT SUMMARY Mariner Retirement Advisors The Tax Cuts and Jobs Act ( TCJA ) was signed by President Trump on December 22, 2017. The Act makes sweeping changes to the U.S. tax code and impacts virtually every taxpayer, individuals and businesses alike. Mariner Retirement Advisors is providing the following comments on the TCJA. This summary represents a synopsis of several important provisions of the Act but is not intended to be a comprehensive report. The analyses expressed herein are subject to change and the distribution of this overview does not constitute tax or other professional advice. We recommend that the recipients consult with their respective professional advisors in determining the immediate and long term impacts of TCJA on their individual tax situation. If you have questions, feel free to call our office at 866-346-7265 for guidance on all of the provisions that might directly affect you. KEY PROVISIONS FOR INDIVIDUAL TAXPAYERS Individuals are impacted more by the provisions of the act than any other class of taxpayer. With the reduction in effective tax rates, the elimination of certain itemized deductions, exemptions, exclusions, and credits coupled with modifications to other deductions and credits, individual taxpayers are going to have to navigate a different maze in making decisions to optimize their tax benefits and minimize their tax liability. It is important to note that many of these provisions impacting individual taxpayers are not permanent due to Congressional budget constraints, and most are set to expire on or before the 2026 tax year. INDIVIDUAL RATES TCJA reduces and redefines tax rates imposed on individual taxpayers with a new top rate of 37% and a new set of income brackets. Single or Head of Household taxpayers with taxable income over $500,000 can expect to pay at the highest rate, while married taxpayers filing a joint return will reach the highest rate with taxable income over $600,000. For additional details, see Table 1 at the end of this document. ALTERNATIVE MINIMUM TAX The Act retains the individual alternative minimum tax (AMT) and temporarily increases the AMT exemption amounts for individuals for tax years 2018 through 2025 (see Table 2). The AMT regime generally imposes a minimum tax on taxpayers, particularly those with higher income, who have substantially lowered their regular tax liability by taking advantage of certain tax-favored or preference items. With the elimination of several itemized deductions that have historically caused a taxpayer to be subject to AMT, many individuals may no longer be subject to AMT. However, the AMT will still be relevant for certain taxpayers. The increased exemption amounts are still subject to limitation for high income taxpayers. The phase out threshold is $1 million for married individuals filing jointly or surviving spouses, and $500,000 for all other individuals. Both the phase out amounts and the temporary increase in AMT exemption amounts will be adjusted annually for inflation. MARINER RETIREMENT ADVISORS Page 1

STANDARD VS ITEMIZED DEDUCTIONS Due to limits imposed by TCJA on several popular itemized deductions (as outlined in the following sections) many taxpayers will see a sharp decrease in allowable deductions starting with the 2018 tax year. The Act partially makes up for these limitations with an increase to the standard deduction (see Table 3). Additionally, the limitation on the deductible amount of aggregate itemized deductions that impacted certain taxpayers has been suspended for tax years 2018 through 2025, offering some added relief. STATE AND LOCAL TAX DEDUCTION For tax years beginning after December 31, 2017, and beginning before January 1, 2026, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total amount of: 1. Real estate or property taxes, AND 2. The greater of state income OR sales taxes. HOME MORTGAGE INTEREST Home mortgage interest continues to qualify as an itemized deduction, subject to reduced limitation thresholds on acquisition indebtedness. A taxpayer may treat no more than $750,000 as qualified mortgage acquisition indebtedness ($375,000 in the case of married taxpayers filing separately) for tax years beginning after December 31, 2017, and before January 1, 2026. For mortgages above this threshold amount, the home mortgage interest deduction is limited to interest paid on the first $750,000 of indebtedness. It should be noted that debt acquired prior to December 15, 2017 is still subject to the historic limitation of the first $1 million of debt. The deduction of interest on home equity indebtedness is suspended until January 1, 2026, meaning that no deduction is available for interest accrued on home equity loans acquired outside the initial purchase of a taxpayer s residence. CHARITABLE CONTRIBUTIONS The limitation on charitable contributions of cash to a qualified organization is increased to 60% of a taxpayer s adjusted gross income ( AGI ) for taxable years beginning after December 31, 2017. The limitations on capital gain property and contributions to private foundations remain unchanged (see Table 4). MISCELLANEOUS DEDUCTIONS SUBJECT TO 2% FLOOR Previously allowable deductions that in aggregate were in excess of 2% of a taxpayer s AGI have been eliminated for taxable years beginning after December 31, 2017 through to the taxable year ending December 31, 2025. These suspended deductions include items such as tax prep fees, investment advisory fees, and unreimbursed employee expenses, among others. AFFORDABLE CARE ACT TCJA addresses some provisions of the Affordable Care Act, but it does not repeal the 3.8% tax on the investment income of high income taxpayers filing joint returns with AGI in excess of $250,000 ($200,000 for a single taxpayer). It also does not repeal the additional 0.9% tax on taxpayers earning wages in excess of $250,000 ($200,000 for a single taxpayer). The Act does, however, repeal the penalty for taxpayers who fail to maintain minimal essential health insurance coverage (commonly known as the individual mandate), effective December 31, 2018. PASS-THROUGH BUSINESS INTERESTS Through the end of 2017, owners of partnerships, S corporations, and sole proprietorships known as passthrough entities pay tax at the individual rates. TCJA continues taxing this income at the owner level but also allows a temporary deduction to the owners, in an amount equal to 20% of domestic qualified business income from the pass-through entities, subject to a number of limitations and qualifications. Qualified business income is domestic business income other than most investment income. Qualified publicly traded partnership income and REIT dividends are included as qualified business income. MARINER RETIREMENT ADVISORS Page 2

Trusts and estates would also be eligible for the 20% deduction. In general, the deduction is calculated by first determining 20% of a taxpayer s qualified U.S. income related to pass-through entities, and then subjecting this amount to certain limitation thresholds. The threshold for limitation is the greater of: 1. 50% of the taxpayer s allocable share of W-2 wages paid by the business, OR 2. The sum of 25% of the taxpayer s share of allocable W-2 wages paid by the business plus the capital element (2.5% of the original cost basis of certain business property). Example 1: For the 2018 tax year, 20% of the qualified business income from Wendy s business is $15,000. Wendy s total allocable share of wages paid by the business in the tax year is $20,000, so 50% of the W-2 wages from the business is $10,000. (For purposes of this example, assume that no qualified property factors into the calculation.) The available 20% deduction of $15,000 would be limited to $10,000. Example 2: To apply an example of the second limitation (use of the capital element) consider a taxpayer with $25,000 of pass-through income from a partnership. This partnership does not employ any individuals, but owns a piece of machinery with an original cost basis of $100,000, placed in service in 2015. The available 20% deduction of $5,000 would be limited to $2,500, or 2.5% of $100,000. Additionally, this limitation on the amount deductible may be phased-in or totally eliminated subject to the taxpayer s taxable income meeting certain threshold requirements. The deduction is generally not allowed for most service trades or businesses such as accountants, doctors, lawyers, etc. but this disallowance for service businesses is phased-in for taxpayers whose taxable income is less than certain thresholds. This provision of TCJA is highly complex, and its application to taxpayers will vary widely based on individual circumstances. BUSINESS LOSSES For non-corporate taxpayers, including owners of a partnership, S corporation, or sole proprietorship, a limitation is imposed on the current deductibility of so called excess business losses. An excess business loss is the excess, if any, of the taxpayer s aggregate deductions for the tax year from the taxpayer s trades or businesses determined without regard to any limitations imposed by this section over the sum of the taxpayer s aggregated gross income or gain for the tax year from such trades or businesses plus $250,000 adjusted for inflation ($500,000 for a jointly filed return). Any amount subject to this limitation must be deferred and carried over to future years. Effectively, this provision of the new law limits a taxpayer from utilizing losses that exceed $250,000 ($500,000 for a married couple) to offset non-trade or business income. These new rules are applied after applying the existing passive activity loss rules for individual taxpayers. CARRIED INTEREST The Act addresses partnership interests transferred to an individual in connection with the performance of services, commonly known as carried interests or profits interests. Under the new rules, the holding period requirement for long-term capital gain treatment of carried interests is increased from one to three years for gains generated after December 31, 2017. KEY PROVISIONS REGARDING ESTATE AND GIFT TAXES TCJA doubles the basic exclusion amount for federal estate and gift taxes and the exemption amount for the generation-skipping transfer ( GST ) tax, but does not include any provisions that would repeal the estate, gift, or GST tax in future years. The doubling of the estate and gift tax exclusion amount will expire for decedents dying and gifts made after December 31, 2025. Therefore, the next several years present a significant planning opportunity for those taxpayers that may be exposed (currently or in the future) to estate taxes. MARINER RETIREMENT ADVISORS Page 3

ESTATE AND GIFT TAX Adjusted for inflation, the estate and gift tax basic exclusion for 2018 is increased to $11.2 million effective for decedents dying and gifts made after December 31, 2017. This means that for a married couple optimizing these new provisions, the maximum applicable lifetime exclusion amount would currently be equal to $22.4 million. The highest tax rate of 40% on taxable estates and gifts remains unchanged. The annual gift tax exclusion (that amount which may be given to an individual without incurring gift tax, nor utilizing any of one s unified credit) is $15,000 in 2018. Married couples may choose to split gifts, effectively increasing their annual exclusion to $30,000 for each individual recipient. The rules allowing beneficiaries of estates to receive a stepped-up basis on assets received from an estate (an increase in tax basis without gain recognition) were not impacted by any provisions of TCJA. GST TAX The exemption from the GST tax is computed by reference to the basic exclusion amount used for estate and gift tax purposes, thus the GST exemption amount for transfers occurring in 2018 is also increased to $11.2 million. Portability does not apply for purposes of the GST tax. The highest tax rate of 40% on taxable transfers subject to the GST tax remains unchanged. KEY PROVISIONS FOR BUSINESSES For businesses, tax benefits include a reduction in the corporate tax rate, increase in the bonus depreciation allowance, an enhancement to the Code Sec. 179 expense and repeal of the corporate alternative minimum tax. Owners of partnerships, S corporations, and sole proprietorships are allowed a temporary deduction as a percentage of qualified income of pass-through entities subject to certain limitations as previously covered. CORPORATE TAXES TCJA enacts a permanent 21% tax rate for C corporations beginning in 2018. This rate represents a flat tax, meaning every dollar of corporate income is taxed at the same rate. Additionally, the 80% and 70% dividends received deductions under current law are reduced to 65% and 50%, respectively. TCJA also repeals the alternative minimum tax on corporations. BONUS DEPRECIATION The bonus depreciation rate has fluctuated significantly over the last 15 years, from as low as zero to as high as 100 percent. It is often presented as an incentive for business growth and job creation through increased capital investments. TCJA temporarily increases the 50-percent bonus depreciation allowance to 100 percent for assets placed in service after September 27, 2017. It also removes the requirement that the original use of qualified property must commence with the taxpayer, thus allowing bonus depreciation on the purchase of used property. This is one of the few provisions that is effective before January 1, 2018. SECTION 179 EXPENSING The new law increases the maximum amount a taxpayer may expense under Code Sec. 179 to $1 million and increases the phase-out threshold to $2.5 million. These amounts are adjusted for inflation after 2018. DEDUCTIONS AND CREDITS In order to balance the sizable benefits offered to business through the new law, a number of business tax preferences have been limited or repealed as discussed in the sections below. INTEREST EXPENSE LIMITATION In an attempt to level the playing field between businesses that capitalize through equity and those that borrow, TCJA generally caps the deduction for net interest expense at 30% of adjusted taxable income (a defined term computed without regard to certain deductions until 2022 when the definition becomes less favorable). Exceptions exist for small businesses, including an exemption for businesses with average gross receipts of $25 million or less. MARINER RETIREMENT ADVISORS Page 4

MEALS AND ENTERTAINMENT No deduction is allowed for costs associated with entertainment, amusement, recreation, or membership dues for a club. Expenses for meals provided for the convenience of the employer on the employer s premises or certain employer-operated facilities are disallowed after 2025. The 50% limitation will continue to apply only for food or beverages and to qualifying business meals. DOMESTIC PRODUCT ACTIVITIES DEDUCTION ( DPAD ) The 9% deduction for qualified income from certain manufacturing activities has been repealed under TCJA. BUSINESS LOSSES Generally, net operating losses ( NOLs ) will be limited to 80% of taxable income for losses arising in tax years beginning after December 31, 2017. The 20 year limitation on carryforward of NOLs is repealed. These post-2017 losses can no longer be carried back to previous years. INTANGIBLES The Act takes steps to remove preferential treatment of self-created intangible assets. Gains or losses from the sale of self-created intangibles including patents, inventions, models or designs, and secret formulas and processes will no longer receive capital gain treatment, and are instead to be treated as ordinary income items. This provision will apply to dispositions made after December 31, 2017. The language of the new laws do not currently specifically name goodwill or other commonly held business intangibles such as customer lists or contracts. Future explanations of the law and IRS regulations are expected to comment on and further define self-created property. OTHER PROVISIONS AND TABLES CASUALTY LOSSES For tax years 2018 through 2025, a casualty loss will only be allowed to the extent it is attributable to a federally declared disaster. CHILD TAX CREDIT The enhanced child credit has been highlighted as one of the provisions that will lower overall tax liability for middle-class families. TCJA temporarily increases the current child tax credit from $1,000 to $2,000 per qualifying child. Up to $1,400 of that amount is refundable. The child tax credit is also expanded to provide for a $500 nonrefundable credit for qualifying dependents other than qualifying children. More families will be able to take advantage of the credit due to an increase in the adjusted gross income phase-out thresholds, starting at $400,000 for joint filers ($200,000 for all others). DISCHARGE OF STUDENT LOANS TCJA modifies the exclusion of student loan discharges from gross income by including certain discharges on account of death or disability. Loans eligible for the exclusion under the provision include loans made by the United States, a state, certain public benefit corporations, certain educational organizations associated with the United States, and certain private education loans. Under the provision, the discharge of a loan as described above is excluded from gross income if the discharge was pursuant to the death or total and permanent disability of the student. The provision applies to discharges of loans after, and amounts received after, December 31, 2017, and before January 1, 2026. EDUCATION BENEFITS TCJA modifies qualified tuition programs and the exclusion of student loan discharges from gross income. Remaining benefits include student loan interest deductions, exclusion of income for graduate student tuition waivers, and the American Opportunity Credit. The above-the-line deduction for education expenses that expired at the end of 2016 was not renewed. MARINER RETIREMENT ADVISORS Page 5

EXCISE TAX ON CERTAIN PRIVATE COLLEGES AND UNIVERSITIES In tax years beginning after 2017, TCJA imposes an excise tax of 1.4% on the net investment income of certain private colleges and universities. For this purpose, net investment income is the same as defined for purposes of the excise tax applicable to private foundations. FARM PROPERTY TCJA shortens the recovery period from seven to five years for any new machinery or equipment (other than any grain bin, cotton ginning asset, fence or other land improvement) used in a farming business placed in service after December 31, 2017. LIKE-KIND EXCHANGES (SEC. 1031) TCJA limits the non-recognition of gain for like-kind exchanges completed after December 31, 2017 to real property. LISTED PROPERTY TCJA increases the depreciation for passenger automobiles placed in service after December 31, 2017. The maximum amount of allowable depreciation is $10,000 for the year in which the vehicle is placed in service; $16,000 for the second year; $9,600 for the third year; and $5,760 for the fourth and later years in the recovery period. The limitations are indexed for inflation for passenger automobiles placed in service after 2018. MEDICAL EXPENSES TCJA lowers the threshold for the deduction to 7.5% of AGI for tax years 2017 and 2018. PERSONAL EXEMPTIONS Under TCJA, personal exemptions are repealed for 2018 through 2025. REAL PROPERTY The separate definitions of qualified leasehold improvement, qualified restaurant and qualified retail improvement property are eliminated. Qualified improvement property is treated as a new class of MACRS property with a recovery period of 15 years, effective for property placed in service after December 31, 2017. The definition of qualified improvement property for purposes of the new 15-year recovery period is the same as the definition applied for bonus depreciation purposes. Specifically, qualified improvement property is defined as any improvement to an interior portion of a building which is nonresidential real property if the improvement is placed in service after the date the building was first placed in service by any taxpayer. ROLLOVER OF PLAN LOAN OFFSET AMOUNTS TCJA increases the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution from 60 days after the date of the offset to the due date (including extensions) for filing the Federal income tax return for the tax year in which the plan loan offset occurs, that is, the tax year in which the amount is treated as distributed from the plan. This extended time is effective for plan loan offset amounts treated as distributed in tax years beginning after December 31, 2017. Under TCJA, a qualified plan loan offset amount is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan, solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the employee s severance from employment. ROTH IRA CONTRIBUTIONS TCJA repeals the special rule permitting re-characterization of Roth conversions for tax years beginning after December 31, 2017. A re-characterization election formerly allowed reversal of a contribution from one type of IRA to another (e.g., Roth to traditional, or traditional to Roth). TCJA does not preclude an individual from making a contribution to a traditional IRA and converting the traditional IRA to a Roth IRA. Rather, the provision aims to preclude the individual from later unwinding the Roth conversion through a re-characterization. MARINER RETIREMENT ADVISORS Page 6

UNRELATED BUSINESS TAXABLE INCOME The unrelated business income tax ( UBIT ) generally applies to income derived from a trade or business regularly carried on by an exempt organization that is not substantially related to the performance of the organization s tax-exempt functions. TCJA requires that for an organization with more than one unrelated trade or business, the unrelated business taxable income ( UBTI ) is now computed separately with respect to each trade or business. A net operating loss deduction is allowed only with respect to a trade or business from which the loss arose. The result of the provision is that a deduction from one trade or business for a tax year may not be used to offset income from a different unrelated trade or business for the same tax year. The provision generally does not, however, prevent an organization from using a deduction from one tax year to offset income from the same unrelated trade or business activity in another tax year, where appropriate. 529 PLANS TCJA expands qualified distributions made after December 31, 2017. Plan participants may withdraw not more than $10,000 in expenses for tuition incurred during the tax year in connection with the enrollment or attendance of the designated beneficiary at a public, private or religious elementary or secondary school. This limitation applies on a per-student basis, rather than a per-account basis. Any excess distributions received by the individual are treated as distributions subject to tax under the general rules of section 529. The provision also modifies the definition of higher education expenses to include certain expenses incurred in connection with a homeschool. Future explanations of the law will help us better determine tax planning and gifting strategies for contributions to 529 plans. Please be cautious in utilizing the provisions of this new law without consulting your tax advisor. MARINER RETIREMENT ADVISORS Page 7

TABLE 1: FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2018 TAXABLE INCOME Single Individuals Not Over $9,525 Over $9,525 but not over $38,700 Over $38,700 but not over $82,500 Over $82,500 but not over $157,500 Over $157,500 but not over $200,000 Over $200,000 but not over $500,000 Over $500,000 Heads of Households Not Over $13,600 Over $13,600 but not over $51,800 Over $51,800 but not over $82,500 Over $82,500 but not over $157,500 Over $157,500 but not over $200,000 Over $200,000 but not over $500,000 Over $500,000 INCOME TAX Married Individuals Filing Joint Returns and Surviving Spouses Not Over $19,050 Over $19,050 but not over $77,400 Over $77,400 but not over $165,000 Over $165,000 but not over $315,000 Over $315,000 but not over $400,000 Over $400,000 but not over $600,000 Over $600,000 Married Individuals Filing Separate Returns Not Over $9,525 Over $9,525 but not over $38,700 Over $38,700 but not over $82,500 Over $82,500 but not over $157,500 Over $157,500 but not over $200,000 Over $200,000 but not over $300,000 Over $300,000 Estates and Trusts Not over $2,550 Over $2,550 but not over $9,150 Over $9,150 but not over $12,500 Over $12,500 $952.50 plus 12% of the excess over $9,525 $4,453.50 plus 22% of the excess over $38,700 $14,089.50 plus 24% of the excess over $82,500 $32,089.50 plus 32% of the excess over $157,500 $45,689.50 plus 35% of the excess over $200,000 $150,689.50 plus 37% of the excess over $500,000 $1,360.00 plus 12% of the excess over $13,600 $5,944.00 plus 22% of the excess over $51,800 $12,698.00 plus 24% of the excess over $82,500 $30,698.00 plus 32% of the excess over $157,500 $44,298.00 plus 35% of the excess over $200,000 $149,298.00 plus 37% of the excess over $500,000 $1,905.00 plus 12% of the excess over $19,050 $8,907.00 plus 22% of the excess over $77,400 $28,179.00 plus 24% of the excess over $165,000 $64,179.00 plus 32% of the excess over $315,000 $91,379.00 plus 35% of the excess over $400,000 $161,379.00 plus 37% of the excess over $600,000 $952.50 plus 12% of the excess over $9,525 $4,453.50 plus 22% of the excess over $38,700 $14,089.50 plus 24% of the excess over $82,500 $32,089.50 plus 32% of the excess over $157,500 $45,689.50 plus 35% of the excess over $200,000 $80,689.50 plus 37% of the excess over $300,000 $255.00 plus 24% of the excess over $2,550 $1,839.00 plus 35% of the excess over $9,150 $3,011.50 plus 37% of the excess over $12,500 TABLE 2: AMT EXEMPTION AND PHASEOUT AMOUNTS FOR 2018 EXEMPTION AMOUNT Single Individual Head of Household Married Filing Joint and Surviving Spouses Married Filing Separately EXEMPTION PHASEOUT THRESHOLD Single Individual Head of Household Married Filing Joint and Surviving Spouses Married Filing Separately $70,300 $70,300 $109,400 $54,700 $500,000 $500,000 $1,000,000 $500,000 MARINER RETIREMENT ADVISORS Page 8

TABLE 3: STANDARD DEDUCTION AMOUNTS FOR 2018 STANDARD DEDUCTION AMOUNT Single Individual Head of Household Married Filing Joint and Surviving Spouses Married Filing Separately $12,000 $18,000 $24,000 $12,000 TABLE 4: PERCENTAGE LIMITATION FOR CHARITABLE CONTRIBUTIONS Public Charities, Private Operating Foundations, and Private Distributing Foundations Cash & Ordinary Income Property AGI PERCENTAGE LIMITATION Capital Gain Property 60% 30% 20% Non-Operating Private Foundations 30% 20% 20% Capital Gain Property for the use of Recipient If you have any questions about the tax law changes or their potential impact on your personal financial situation, please contact us. Contact us at: 866-346-7265 Source: Joint Explanatory Statement of the Committee of Conference DISCLOSURE This document is for informational use only. Nothing in this presentation is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Retirement Advisors does not warrant the accuracy of the information. Consult a financial, tax, or legal professional for specific information related to your own situation. Mariner Retirement Advisors ( MRA ) is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment advisor does not imply a certain level of skill or training. MRA and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which MRA maintains clients. MRA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MRA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MRA, including fees and services, please contact MRA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you invest or send money. MARINER RETIREMENT ADVISORS Page 9