Tax reform is here. On January 1, the massive and far-reaching Tax Cuts and Jobs Act took effect, cutting the corporate tax rate from 35% to 21%, creating a new pass-through income deduction for unincorporated businesses, reconfiguring individual tax rates, eliminating many deductions, and overhauling the estate and gift tax. It’s a complicated subject, and you can serve your business and your clients best by identifying simple, actionable opportunities created by the new rules. Here are seven ways you can use tax reform to build your business in 2018.
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Take Advantage of the Pass-Through Deduction for your Company
You may be able to take a special 20% deduction for pass-through entities by structuring your company as a C corporation, be it an S corporation, an LLC, or a sole proprietorship.
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What About your Clients’ Trusts
In addition to the personal application, the pass-through deduction also applies to trusts that own pass-through entities like partnerships and LLCs. In a last minute change, however, the bill exempted capital intensive businesses like real estate partnerships from the income limits, so trusts with these kinds of assets can take the 20% deduction regardless of how much money they earn.
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Double up on Dynasty Planning
The tax package effectively doubles the estate, gift, and generation skipping tax from $5 million per individual in 2017 to $11.2 million in 2018. Experts say that the new higher exemption creates an opportunity for setting up or expanding dynasty trusts, effectively removing additional money from the estate even if the exemption shrinks in future years.
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Manage State Taxes with Trusts
Help your clients cope with the new $10,000 maximum state and local income tax deduction with non-grantor trusts, which are taxed based on where the trust is domiciled, not where the grantor lives.
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Prepare for the Buyback Boom
Lower taxes plus a one-time repatriation of foreign profits should foster growth, share buybacks and higher dividends to boost equity prices this year.
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Be Strategic about Charitable Giving
Show your clients how to group charitable gifts together to maximize their deduction. Donor-advised funds let them give the money now and decide how to divide it up among favored charities over time.
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Expand your Business in 529 Plans
Tax reform changed the law to allow 529s to fund private elementary and high school expenses. Talk to your clients with kids — and grandkids — about how this new provision can work for them.
For more details on the tax reform package and the opportunities it creates for financial advisors, download Premier Trust’s free white paper “The Trump Tax Cut and Jobs Act Made Simple.”
