Advisors have been responding to emails, writing blogs, updating their Twitter accounts and even running client tax returns with the new rates to keep antsy investors informed about the most sweeping tax overhaul in more than a quarter century.
Good news can be easy to communicate. In order to help investors understand exactly what their taxes will look like next year, Bernard Kiely, president of Kiely Capital Management, Morristown, N.J., has applied the tax plans’ new rates to clients’ 2016 income tax returns. “So far, I’ve run about half of my clients’ taxes and every one of them will see lower taxes in 2017,” Kiely told Financial Advisor magazine.
One of Kiely’s clients who earns approximately $500,000 will save $12,000 next year, said Kiely, who had just prepared the client’s 2016 income tax statement with the newly-approved rates and standardized deduction for a client meeting. “At his income level, he hardly got benefits from individual deductions any way so he’s better off with the $24,000 new standard household deduction,” Kiely said. “Next year, he’ll also see $1,000 more in monthly gross income,” the CPA added.
“The higher you are on the income scale, the better off you are with this plan. You can’t give a tax break to someone who doesn’t pay taxes,” added Kiely, who said a number of clients had emailed him with concerns about the new tax plan.
The sprawling plan, which could land on President Trump’s desk by Friday, would revise nearly every part of the tax system by lowering income tax rates at all levels, restructuring deductions and providing lower income-tax bills to the vast majority of households, though the wealthy who pay more in taxes will see more relief. The sprawling plan cuts the corporate tax rate dramatically, provide new breaks for businesses and even removes the Affordable Care Act mandate.
Staying abreast of investor concerns is paying off, advisors told Financial Advisor magazine. Jon L. Ten Haagen, president of Ten Haagen Financial Group, Huntington, N.Y., said that he has had clients bring more money to the firm to invest in anticipation of the tax changes.
Ten Haagen has been sending out weekly emails and writes a weekly column for his local newspaper to keep his clients current on the tax plan and market changes. “We point out the long-term results of our plans and why people should not concentrate on the short term,” he added.
Chuck Donalies, president of Donalies Financial Planning, LLC, Washington, D.C., said he has been answering client emails and writing a weekly blog to stay in front of the fast-moving tax plan as it has made its way through various iterations in Congress.
“My clients in the Washington, D.C., region do tend to be aware of current events like this tax reform, so I have been getting emails from clients wanting to know if there is anything they should do now or know about,” Donalies said. “One move I had suggested for clients to consider to save them a little bit of money is prepaying their 2018 property taxes early to take the tax deduction in 2017.”
The Republican bill is silent on prepaying 2018 state and local property taxes, which suggests homeowners who pay their taxes directly (i.e. not through a bank) could pay those taxes this year, increasing the property tax deduction they can take on their 2017 federal returns while it’s still unlimited. But if clients are subject to the alternative minimum tax (AMT), say accountants, it does not make sense to pay property taxes early: They won’t get a deduction because the AMT requires state and local taxes to be added back into income.