Tax Cuts and Bitcoin Frenzy

In an effort to inform our clients and our community, we have patiently waited to provide insight on the tax reform efforts likely to be passed this week. It appears the House and Senate have finally reconciled legislation that will be sent to the President for signature.

Separately, it’s hard to ignore the meteoric rise of Bitcoin and the emergence of cryptocurrency as an asset class, or at least the investment world’s effort to try to turn it into an asset class. Accordingly, we thought we would provide some thoughts on that trend (hysteria?) as well. As always, we look forward to our subsequent dialogue with you on how these developments may affect your overall wealth management and planning opportunities.


As reported in The Economist, Bitcoin futures began trading on the Chicago Board Options Exchange recently and this is likely to further boost the near rock-star interest in the digital currency. It’s hard to ignore the 1,550% rise in Bitcoin, however, the below text focuses not just on Bitcoin – it can be applied to any crypto (digital) currency.

So what exactly is cryptocurrency? Cryptocurrency is essentially “money” (store of value, a unit of accounting, and a medium for exchange). The primary difference between cryptocurrency and a stock is that an equity (stock) is a claim on assets and profits of a company. Bonds don’t generally rally like equities can (or Bitcoin has), but like stocks, they entitle the investor to a series of future coupon payments or a cash flow upon maturity.

Cryptocurrency brings no cash flows to its owner. Some might argue that like gold, cryptocurrency is a store of value, but given its volatility, we do not believe this is a valid benefit of owning digital currencies at this time. The U.S. dollar has value because it is backed by the good faith, credit, and tax collecting ability of the U.S. government, whereas Bitcoin’s main selling point is that its underlying code seemingly ensures that no more than 21 M coins will ever be created. Because other cryptocurrencies already exist, Bitcoin’s fundamental driver of value, it’s scarcity, is eroding. We do not believe cryptocurrencies will soon supplant ordinary currency in everyday transactions because of its volatility. Who would take out a mortgage in cryptocurrency if the price of their home changed by 20% in an hour? Because of its speculative nature, investing in Bitcoin and other cryptocurrencies is akin to gambling – we are not saying to avoid it altogether, but just as if/when you visit a casino, set a limit on how much you are willing to lose, and if it works out, great. If not, it won’t change the course of your overall financial plan should it crash.


After a volatile period of negotiations in both the House and Senate, a final reconciled version of the Tax Cuts and Jobs Act of 2017 appears to be heading to the President’s desk by year-end. Corporate changes have been labelled “permanent” while those changes for individuals are scheduled to sunset after 2025. For individuals, the new law would be a series of cuts and tweaks, and unfortunately seems to create more tax planning complexity for many. The following bullets seek to summarize some of the key components of the tax bill. As we have in the past, we will continue to partner with our clients (and their CPAs) to optimize the law as proposed and responsibly implement strategies in the months and years ahead.



  • 7 tax brackets remain but most are decreased by a few percentage points (with the top rate set at 37% - see above table)
  • Increases the standard deduction to $12,000 from $6,350 for a single filer
  • Increases the standard deduction to $24,000 from $12,700 for a joint filer
  • Doubles the child tax credit to $2,000 from $1,000 per child
  • Bill retains the popular 401(k) and Individual Retirement Account savings opportunities
  • The mortgage interest deduction is retained with the modification that it is limited to the interest on the first $750k mortgage amount (vis-à-vis first $1 M previously)
  • Student loan interest remains deductible and graduate student tuition waivers remain tax free
  • State and local tax deductions are retained, but modified; limited to the first $10,000 in taxes paid for property, income, or sales tax
  • The Pease limitation is to be repealed. As a reminder, the Pease limitation erodes the impact and scale of itemized deductions (ie charitable deductions)
  • Increases the exemption amount from the Alternative Minimum Tax (AMT)
  • The estate tax exemption amount is to be doubled to $11.2 M for individuals, $22.4 M for couples, with portability
  • The controversial rule that would have eliminated individual lot identification, and required all investors to use First in First Out (FIFO) accounting is out and not included in the reconciled bill
  • Several popular Roth strategies will be curtailed as Roth re-characterizations will be repealed – nonetheless, the “backdoor” Roth rules remain which allows a non-deductible contribution to a Traditional IRA with subsequent conversion to Roth (possibly tax free if the individual has no other Traditional IRA or SEP IRA assets)
  • Section 529 plans have typically only been available for college education expenses, with Coverdell Education Savings accounts being used for pre-college education. A revision in the law means that 529 accounts could be used for any education expense, from elementary to college, and even home school expenses. Pre-college expenses are limited to $10,000 per year.


  • Alternative Minimum Tax (AMT) for corporations is eliminated
  • The top corporate tax rate would move to 21%, effective 1/1/18
  • Corporations would be allowed to immediately expense new equipment (capital investments) for 5 years
  • Protects the ability of small businesses to write off interest on loans and preserves the research and development tax credit
  • Retains the tax-preferred status of private-activity bonds that are used to finance infrastructure projects
  • May make it easier for Americans to re-patriate (bring home) foreign earnings given the improved parity with other country’s top corporate tax rate