Level Four Perspective: A Tax Reform look from our wealth management portfolio company in the CRI Family of Companies.
Once the new Tax Reform bill appeared to be heading toward passage, the Level Four offices were flooded with calls from clients and their advisers asking for help understanding the impact to their bottom lines. Let’s focus financial planning into five key planning points every household should consider under the new tax laws for 2018 and beyond.
1. Deductions and Credits
While some will take the nearly doubled standard deduction, many households will continue to have expenses in a few key areas where itemizing can be a way to increase the bottom line.
- Healthcare expenses can now be deducted if they exceed 7.5% of income.
- Charitable contributions continue to be deductible.
- In addition to deductions, increased tax credits for children plus a new credit for dependent parents are available to a larger group of taxpayers.
2. Education Planning
529 Plans should experience an uptick in usage as they can now be used for primary AND secondary education expenses. One unique opportunity for those who have the means to do so will be in “front-loading” these plans in order to pay for private school as well as college expenses. When utilized in accordance with the rules, 529 plans provide a great opportunity to save for future education expenses while eliminating income taxes.
3. Estate Tax Planning
While many hoped the estate tax would be eliminated, the new law kept it in place it but doubled the exemption amount through 2025. Therefore, married couples can now exempt up to $22.4 million from estate and gift taxes while singles have an exemption of $11.2 million. Until this is permanent, move ahead with planning according to current exemption levels and plan to leave your estate behind in the most efficient manner possible.
4. Retirement Accounts
While contribution limits were unchanged, certain rules were impacted. If you’ve been considering contributing to a Roth IRA, you’ll no longer be able to change your mind. Also, if you need to borrow from your 401(k), there may be a little more flexibility under the new rules.
5. Compensation at Work
Businesses will benefit the most from the new tax laws through reduced tax rates and expanded deductions in many areas. Many hope businesses will pass that savings on to some or all of their employees through increases in salary or bonuses, as well as deferred compensation plans. If you own a business, it may now be easier to reward and retain key employees.
Bottom Line: How Much Will You Save?
In order to get a clear understanding of how you can benefit under the new rules, the Level Four team can steer you down the right path by providing quality financial planning advice that doesn’t require purchasing products or moving assets. For more regarding Level Four and how we look to change the delivery of client advice, visit Level Four online.