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GOP Tax Proposal: What it Means for your Clients

November 3, 2017

Financial advisors should talk with their retiree and pre-retiree clients in view of the proposed $1.51 trillion Tax Cuts and Jobs Act unveiled Thursday. While the eventual GOP tax overhaul is far from certain, it’s a good idea to review expenses, income and previous tax returns, as well as run what-if scenarios, according to TheStreet.com.

Standard deductions under the proposal will almost double to $12,200 for individuals and to $24,400 for married couples, the web publication writes. Meanwhile, concerns about a drastic cut to 401(k) pre-tax contributions have proven to be unfounded. The tax plan keeps those limits intact, according to TheStreet.com. In addition, the proposal raises the child tax credit from $1,000 to $1,600, according to the web publication.

However, the GOP proposal will cap deductions for state and local property taxes at $10,000, as well as repeal itemized deductions for medical expenses and student loan interest and tax credits for adoption, the web publication writes. And home mortgage interest deduction for existing mortgages at the federal level will only apply to homes worth $500,000 or less, down from $1 million, according to TheStreet.com. On the other hand, the proposal would eliminate the alternative minimum tax, according to the web publication. The repeal of the AMT is seen as benefiting top earners.

But one of the biggest positive impacts for wealthy clients is the proposed doubling of estate tax exemptions starting in 2018. The estate tax would only apply to individuals with at least $11.2 million per person and $22.4 million per married couple, and would be eliminated outright in 2024, the web publication writes.

Among other changes that will affect retirement savers are the reduction in the number of tax brackets from seven to four, ranging from 12% to 39.6%, the web publication writes. The top bracket, while not getting cut to 35% as proposed at one point by president Donald Trump, will apply to individuals earning $500,000 or more annually and couples earning $1 million or more, according to TheStreet.com. Currently, it applies to individuals earning $418,000 and couples earning $941,400 or more, according to efile.com. The lower tax bracket, meanwhile, has been expanded to workers earning $45,000 individually or $90,000 as couples, the web publication writes.

“On the whole it looks like good news for retirees," Mark Luscombe, a principal analyst with Wolters Kluwer, tells TheStreet.com.

(Getty)

On the other hand, the proposal is likely to go through substantial changes, Jeffrey Levine, CEO and director of financial planning at Blueprint Wealth Alliance, tells the web publication.

For investors in U.S. markets, meanwhile, the proposed tax overhaul had some “pleasant surprises,” according to the Wall Street Journal. This includes a cut to the corporate tax rate to 20% as well as the allowance of immediate deductions of capital investments, according to the paper. Nonetheless, U.S. markets have already priced in the gains from the anticipated tax reform, the Journal writes.

By Alex Padalka
  • To read the The Street article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.