The New Tax Law And Your Financial Plan
By: John P. Napolitano, CFP®, CPA, PFS, MST
The recently passed tax law, known as the Tax Cuts and Jobs Act, has many wondering how to alter their financial plans. According to a poll conducted on behalf of the American Institute of CPAs, over 90 % of people surveyed with income greater than $200,000 believe that tax planning would be somewhat or very important to their financial well-being.
That said, people living in high tax states such as MA, NY or CA, feel that this tax act has taken a lot of wind out of their sales with the $10,000 limitation on the state and local taxes paid. That limits deductions for many high net worth taxpayers as their home property taxes and state income taxes are likely to be greater than the limited $10K deduction now allowed for under the new act. These states, by the way, are feverishly trying to figure ways around the limitation. So much for tax simplification!
There are planning strategies being kicked around in the high net worth circles. The first frequently discussed opportunity is to see if your small business will qualify for the 20% deduction against qualified business income. Essentially, this provision was created to create parity for small business next to large conglomerates whose effective tax rate was reduced to 21% in the new act. Not all companies will qualify for this, so smart money is now speaking with your advisors to see how you may restructure your entity to benefit from this new lower rate.
The standard deduction, which can be used instead of your traditional itemized deductions such as mortgage interest and charitable contributions is now set at $20,000. What that means to you is that you will not receive any tax benefit from your itemized deductions if they are less than $20K. To that end, if you are charitably inclined, you may consider timing or bunching your contributions so that there is some tax benefit. Charities may not like getting a gift every other year or less frequently, but for the tax conscious, this may become their reality.
The deduction for home mortgage interest has been reduced. For all mortgages taken after 12/15/2017 the interest will only be deductible for loans up to $750,000. For mortgages takes prior to that date, the old limit of $1 million still applies. A move to consider for those with excess non-deductible interest may be to accelerate your loan payoff. The new act will also limit deductibility of home equity loans or lines of credit unless the funds are used to buy or improve a home.
This tax act came upon us rather quickly. Remember this, deceased US court of Appeals Justice Learned Hand once said “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes.” Plan now while you still have the majority of the year to reap the benefits.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
US Wealth Management, US Financial Advisors and LPL Financial do not offer tax advice. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.