The Tax and Jobs Act is now law, and that means there are a new set of rules that will govern your taxes starting in the 2018 tax year. Now, unless you’re a tax professional, it’s not necessary to become an expert when it comes to all the law’s ramifications. Yet you do need to understand how the new rules could affect your overall tax picture.
Right now, you are probably working on your 2017 tax return, or maybe you’ve already submitted your documents (W2, 1099, etc.) to your tax preparer. At the very least, you’ll probably soon be meeting with your tax professional, and when you do you should start asking questions about the new law, and how you can prepare now for next year.
To start, you should begin by developing a 2018 tax strategy. Ask your tax professional the following questions:
At Mercer Advisors, we are actively engaged in discussions with clients on the best ways to reduce the impact of the new tax rules.
Implementing tax-planning strategies for our clients is part of the benefit they get from our full-service structure, which includes tax strategies, estate planning, investment management and asset protection—all for one fee with qualifying balances of $1mm or more.
Here are the top five strategies we’ve been discussing with clients so that they can reduce their overall tax burdens in 2018. These strategies may not apply to you.
1. Analyze your 2017 itemized deductions. The key issue here is whether you should itemize deductions in 2018 given the increase in the standard federal deduction. For Californians, the cap on individual state and local property, sales, and income tax deductions could be a big deal. Also, understanding your possible shift into a new tax bracket is another big issue.
2. Small business owners have many issues to discuss and strategize. Should you keep your S corp. election? What is the best retirement plan under the new law? How can the rules on capital expenses and depreciation be used in 2018? A deep dive on taxes and your corporate structure are likely going to be needed for most small business owners.
3. Review your investment income. Qualified dividend income is still treated favorably under the new rules. Your stock portfolio should be structured to take advantage of the lower rate on investment income vs. regular income. Municipal bond income is also still favorable for those in the upper tax bracket, but not for those in the lower brackets. Speak with your investment advisor about your taxable income sources and how to maximize after-tax returns.
4. For those taking required minimum distributions (RMDs) from retirement accounts, a discussion with your tax team around the issue of “gifting” is needed. Did you know you can reduce your taxable income by gifting directly out of your IRA to a favorite charity?
5. Gifting strategies should be reviewed in detail with your estate, tax and financial team.There are more favorable rules in 2018 pertaining to the amount you can gift and still maximize deductions. In addition, charitable gifting to a donor-advised fund or other estate structure also could be favorable to you.
Keep in mind that the extent of the new law’s impact on you is largely dependent on your income sources. As you meet with your tax preparer to finalize your 2017 returns, be sure to discuss the nature of all your income sources and how the new rules apply to those income sources.
Remember, now is the time to put a plan in place for managing your tax situation for the 2018 tax year, and the earlier you get started the better.
If you would like a second opinion on your tax strategies, or if you’d like a review of your investment income and how you can make it more tax efficient, please call me at (805) 565-2524.