Although the new tax rules made headlines in early 2018, their effect will only be fully felt this year. For individuals, it will be an eye opener. For you, it provides a great opportunity to demonstrate your value because several of the benefits require your ongoing involvement.
This brings up the question: What practical advice should you give clients?
You know how the new tax laws are negatively impacting middle-class homeowners earning a salary. Here are a few positives you can bring up:
Go for tax-deferred growth: Almost everyone’s retirement plan is underfunded. If your client can top it up or put money into a tax-deferred environment, this will save them money on taxes on dividends, interest and capital gains in conventional accounts.
Pay down loans: Credit card interest hasn’t been deductible for years. Now, home equity loan interest is getting the same treatment. If an individual carries a balance on a revolving credit card, they might be paying 16 percent annually. Did I mention that’s compound interest? With interest rates rising, it’s a safe bet credit card companies and banks will be passing those increases on to their customers. The easiest way to earn 16 percent on a savings account is to stop paying it to the credit card company.
Use debit cards: It’s easy to run those balances right back up again. Recommend your clients try carrying only one credit card and using a debit card for purchases. They will be surprised at what they discover they don’t really need when paying isn’t as easy as tossing over a credit card.
Take advantage of the Child Tax Credit: Actually, you will do that for them. The threshold for filers to qualify has been raised.
Learn about the 529 plan rules for college education: Previously, these accounts were aimed at saving for college expenses. Now, the funds can be used for private and religious K-12 schools. Even home schooling qualifies.
Use the medical expense deduction: Hopefully, your clients don’t need it. The threshold is now 7.5 percent of an individual’s gross income whereas previously, it was up at 10 percent.
Care for the elderly at home: There’s now a $500 credit for each dependent who isn’t a child. Make sure you specifically ask clients if they are taking care of aging loved ones. The older relatives living at home might not usually come up in conversation.
Keep giving to charity: They may still get to keep those deductions.
Got a business?Buy equipment: This is a lot more complicated than it looks, but it’s still a viable option, and one you can help clients with. They might consult, write or run a business on the side. If they buy equipment like computers or a pickup truck, they can theoretically deduct the cost of certain depreciable assets in one year instead of over several. This should sell a lot of trucks, but the devil is in the details. They can’t just go buying a used 2013 Cadillac Escalade pickup truck, expecting to depreciate it in one year. The government has rules concerning what qualifies as a truck for a business.
Got a business?Use the pass-through deduction: If your client is part of the gig economy, they’ll have a 20 percent deduction applicable to pass-through business income. This should lower their taxes. As their accountant, you will help them with this one, too.
Many residents in high-tax states, along with people used to itemizing, may face a higher tax bill in 2019. There are suggestions you can make to help them lower it in 2020.
Bryce Sanders is president of Perceptive Business Solutions Inc. in New Hope, Pennsylvania. He provides high-net-worth client acquisition training for the financial services industry. His book, Captivating the Wealthy Investor, can be found on Amazon.com.