Most taxpayers wonder about tax changes now that reform is the law. Your high-net-worth clients have special questions.

“The new tax law has been an excellent conversation starter with our clients across the country,” said Louis Sands, CPA and tax director at the accounting firm Sikich in Naperville, Ill. All clients, he added, “ask essentially the same questions: ‘How is this going to impact me? Am I going to save on taxes? Will I owe more tax? Are there opportunities to be grabbed or pitfalls to avoid?’”

“The federal income tax on long-term capital gains and dividends did not change, so one of the key pieces of advice for most high-income families is to not panic,” said David Lifson, CPA at Crowe Horwath in New York. But “do the math. Generalizations are a trap for the unwary.”

One part of the new tax law raises high-net-worth questions that may also provide opportunities for tax planning: the new 20% deduction for qualified business, Sands noted. “Congress created this deduction to provide some tax savings for pass-through businesses … as a result of the significant reduction in the tax rate for corporations,” he said. “The overall impact of this deduction is that the top individual tax rate of 37% in 2018 would drop to about 30%, and those in lower tax brackets may also see similar savings. It’s important for [high-net-worth] individuals to explore the rules for qualified business income.”

“For a closely held business that operates now as an S corp, should it consider switching to C corp status in 2018 due to the cut in the corporate tax rate?” Sands asks. “The tax rates for C corps will now be much lower than the top individual tax rate. This is … not as simple as just looking at the current tax rate differential, although this is certainly one of the factors.”

Also consider whether your client’s company plans to distribute its excess earnings or reinvest them back into the business.

In the new year, revisit estate-planning structures and strategies in light of proposed changes to the unified credit, said Elizabeth Leatherman, CPA and associate director of tax services with Dean Dorton Allen Ford in Lexington, Ky., and member of the Kentucky Society of CPAs. “It’s always important to periodically make sure that your estate plan is in line with your current needs and objectives,” she added. “It’s particularly important when laws change.”

For instance, the lifetime exemption from gift, estate and generation-skipping taxes increases to $10 million (adjusted for inflation). “A key item for early consideration will be the changes to the gift and estate tax rules,” Lifson said. “[A] family with assets around $20 million or so has to think carefully about whether they want to make gifts now, with no step-up in basis at death, or whether they want to hold assets until death, with a free step-up in basis.”

Tax reform might even affect this spring’s tax season. “There are numerous changes in the tax bill for 2018 that the IRS will need to provide guidance on, so its resources will be squeezed as it tries to provide direction related to the new law while also administering the current filing season,” Sands said.

Again this year, plan early. “If there’s something in their plan that is unclear by February or mid-March, [high-net-worth clients] should consider paying the most they think they’ll owe in April and extending their tax returns to see if they can do better,” Lifson said.

First « 1 2 » Next