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FAs Should Review Client Taxes Early in 2018

January 4, 2018

There’s no reason for wealthy financial advice clients to panic about the tax reform pushed through by Republicans late last year, tax experts tell ThinkAdvisor. But advisors should nonetheless plan to do an early review of their clients’ financial situation, according to CPAs.

The reform doesn’t include changes to taxes on long-term capital gains and dividends, so the first piece of advice for high-income clients “is not to panic,” David Lifson, a CPA at Crowe Horwath, tells ThinkAdvisor. However, he warns against making generalizations.

At the same time, the 20% deduction for qualified businesses introduced in the GOP tax overhaul creates tax savings for pass-through entities and financial planners should explore this opportunity with their clients, Louis Sands, CPA and tax director at the accounting firm Sikich, tells the publication.

The change means that the 37% top individual tax rate could effectively be cut to around 30%, and even some clients in lower tax brackets could benefit, he tells ThinkAdvisor. In addition, advisors should explore whether businesses held as S corporations could benefit from the lower corporate tax rate by switching to a C corporation, now taxed at a significantly lower rate than individuals in the top tax bracket, according to Sands.

The new tax law’s increase of exemptions from estate, generation-skipping and gift taxes to $10 million, meanwhile, should prompt advisors to do an early review of their wealthy clients’ financial situation, Elizabeth Leatherman, CPA and associate director of tax services with Dean Dorton Allen Ford, tells ThinkAdvisor.

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Starting early is a good idea also because the IRS will likely be inundated with questions as a result of the changes, Sands tells the publication. And for clients whose tax situation is still unclear by mid-March, Lifson suggests they pay the maximum they believe they’ll owe and then file for an extension to potentially pick up more benefits, according to ThinkAdvisor.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.