FAs Might Have to Work Some Overtime in Light of Federal Tax Overhaul
Financial advisors may have to skip on some of their holiday plans in the next two weeks as concerned clients rush to sort out their taxes before the Republican tax overhaul kicks in Jan. 1, Reuters writes.
Republicans reached agreement Friday between the Senate tax bill and the House plan, although the final outcome is still uncertain pending a vote expected this week, according to the newswire.
Nonetheless, the current proposal will limit the amount of deductions from federal taxes available to some taxpayers. One of the plan’s provisions puts a $10,000 cap on state, local and property tax deductions, for example, Reuters writes. In addition, high-earning taxpayers in high-tax states may be liable to the alternative minimum tax, which would cut the amount of deductions available to them, according to Reuters.
Lisa Featherngill, managing director of wealth planning at Wells Fargo’s Abbot Downing, tells the newswire wealthy clients and their accountants are trying to understand whether they should pay their itemized taxes this year — or whether to itemize at all. Featherngill has canceled plans to join her family for a football game so she can work, she tells Reuters.
“It’s going to be a very busy holiday season for advisors,” Tom Holly, head of PwC’s wealth and asset management division, tells the newswire.
If dealing with concerned clients weren’t enough, the GOP tax bill also affects how brokers themselves get taxed. Practices set up as pass-through entities, for example, will be able to deduct up to 20% of their income if the owner earns under $157,500 filing as an individual or $315,000 filing jointly, the Wall Street Journal writes.
But brokers working at big banks will be treated as employees, which means they could be paying a high tax rate on all of their earnings, Bloomberg writes. The top tax rate was reduced from 39.6% to 37%. Nonetheless, independent contractors could still opt to set up as a C corporation, Anjali Jariwala, founder of FIT Advisors in Redondo Beach, Calif., told FAIQ recently.
The corporate tax rate, under the current proposal, has been dropped from 35% to 21%, according to the Journal.