For investors, tax season may be more challenging this year as a result of the Tax Cuts and Jobs Act.
The new tax bill went into effect that went into effect on Jan. 1 2018, and most American investors said they don’t completely understand how they will be affected by the changes.
However, many plan to take action to maximizie potential benefits and reduce their tax burden, according to the most recent TD Ameritrade Institutional survey. While navigating the new tax bill has investors feeling uncertain, they trust the advice of financial advisors over all other sources, according to the report.
Many investors are unaware of how the new tax changes will affect them. In fact, only 25 percent said they fully understand how the new laws will impact them personally, and 17 don’t understand how they are affected at all. Many taxpayers will need guidance to fully understand the changes. Twenty-five percent of respondents said they trusted the guidance of advisors over other financial service professionals, including accountants (14 percent), and tax preparation professionals (11 percent).
“There are plenty of experts offering their views on the new tax code and how investors should respond, yet we find, once again, that investors want advice and guidance from someone they trust, especially in times of uncertainty and change," said Tom Nally, president of TD Ameritrade Institutional. "People want to know that someone has their back. More often than not, that trusted individual is their personal financial advisor."
American investors have split views on how the changes will affect their take-home pay. Nearly 60 percent said the tax law would likely impact their take-home pay, according to the study. Thirty-five percent are expecting to see an increase, while 22 percent believe they will see a reduction in their pay.
Investors are not only split on their personal feelings about the tax changes, but also on how those changes will affect the U.S. as a whole. Overall, 29 percent of investors said they “hate” the new tax plan, while 22 percent said they “love” it. Forty-nine percent said they didn’t feel strongly either way. Similarly, 41 percent of American investors view the tax changes as a benefit to the U.S. economy, but 35 percent believe the impact will be negative.
Although investors are divided in their beliefs about how the tax cuts will affect the U.S., they did agree that wealthier households would benefit the most, according to the report. Despite income level or investable assets, 63 percent believe those who earn more money than them will benefit more. Fifty-five percent of all respondents said “very wealthy people” will benefit the most.
Views on the new tax code were seemingly linked to political affiliation and personal wealth. Forty-two percent of Republicans said they “love” the new tax laws while only 9 percent of Democrats said the same. On the other end, 8 percent of Republicans said they “hated” the tax code while 49 percent of Democrats said the same.
Investors in high-income, high-tax states feel the new tax laws will hit them hardest. Forty percent of respondents in California, Connecticut, Massachusetts, New Jersey and New York said they “hated” the new tax plan and 44 percent expect to pay more in taxes versus a third of Americans overall. Half of all respondents in these locations believe the tax laws will negatively affect their state compared with 32 percent of the rest of the country. As a result, 32 percent of respondents said they would consider moving to a state with lower taxes, versus 24 percent overall.