Barbara M. O’Neill a financial advisor at Rutgers University, Newton, N.J., said that questions about prepaying property tax and charitable contribution deductions lead the inquiries she’s getting from clients. As for benefits from prepaying property taxes, “it depends,” O’Neill said. “If you pay your property taxes directly to your local municipality, check with the tax collector to determine if property tax prepayment is allowed, and if so, how many quarterly payments can be accepted in advance.” Property taxes paid via an escrow account held by a mortgage lender won’t be counted until the lender pays the IRS, regardless of when you send a payment to the lender,” O’Neill said.
Prepaying charitable contributions planned for 2018 in 2017 to take advantage of current laws can make sense since “the standard deduction will increase and SALT deductions will be capped, so many Americans will lose their ability to itemize deductions,” O’Neill added. “When this happens, many charitable contributions will no longer result in an income tax deduction.”
Dermel Franklin, a financial advisor with Bump & Associates, Washington, D.C., said his firm is reaching out to clients before they reach out with questions. “We are pre-empting the conversation and bringing it up in client meetings,” said Dermel, who had just attended an in-house tax plan update “on what we need to tell our clients. We assume this will be an ongoing conversation. There might be a lot of misperception out there on whether our client are getting a tax cut or increase.”
While some clients are venting about perceived politics behind the tax plan, “as financial planners we are going to stick with our financial plan, our asset allocation plan and work with clients’ accountants,” Dermel said.
Scott A. Bishop, director of financial planning at STA Wealth Management, Houston, Texas, has most of his clients follow him on social media to keep them abreast of opportunities and fallout from the tax reform. “I have posted a lot about tax changes and put several posts in our weekly newsletter,” Bishop said. “I have been talking about this for the last year.”
John F. Bucsek, a financial advisor with MSI Financial Services, Iselin, N.J., said he has initiated all the tax conversations with clients to date. “We work with our CPA partners and have conference calls to answer questions,” according to Bucsek, who said he sees this as an ideal time to communicate with investors. “This is a great opportunity to reach out to clients as there will be many questions,” he said
Most advisors said almost all of their clients are staying put in their current states, despite the loss of state and local tax (SALT) deductions beginning in 2018.
“I’m 42 years old and have a lot of clients between their late 30s and mid-50s who have jobs and kids in school here in the greater Washington, D.C. region,” Donalies said. “Even if they’re frustrated by the changes, they’re not going to leave because it would be a major family disruption.”
Kiely said he has a few clients who may be incented to pick up and leave New York or New Jersey, states that both have higher than average income and property tax rates. “I have clients who have been considering moving already and this may be what pushes them over the top.”
Helping clients’ decide whether or not they need the tax savings enough to put it before their lifestyle and other considerations is also his job, Kiely said. “I have one wealthy client who already retired to Pennsylvania for cheaper income taxes. He has a vacation home in South Carolina and called me wanting to know which state would be cheaper for him now. When I ran the numbers, one state would save him $7,000 overall but I wouldn’t tell him which. He has so much money, it would be like you or I moving to save $15. I said ‘You don’t need the savings. You should live where you want to live,’” Kiely said.