Five Questions You Should be Asking About the New Tax Plan
The new “Tax Cuts and Jobs Act of 2017” was signed into law on December 22, just as many of us were preparing to gather with family to celebrate Christmas. Ever since its passage, the law has continued to be in the headlines. Overall, it’s a mixed bag of benefits, so it’s natural to wonder: how will this law impact me? The law’s many aspects and nuances call for individual conversations with your advisor. To help guide the discussion, here are five questions you should be asking about the new tax reform:
What should I be doing now to plan ahead?
There’s plenty to digest in the new law, but now is the right season to prepare for the future. While you’re doing your 2017 tax return filing, make sure to get a firm grasp of how the new tax changes will impact your 2018 taxes. Your Sound Stewardship Wealth Advisor, as well as your CPA, can help you determine what aspects do and don’t apply to you. If you start now, you’ll have plenty of time to navigate all the details and make a game plan for the future.
I’m a business owner. What aspects of the tax reform bill matter most to me?
Small Business Owners in particular may be impacted most by the new bill. In general, they will take a 20% deduction from their “Qualified Business Income” (a new classification of profit) on their personal tax returns. However, not all small businesses with pass-through income will be treated the same. For example, service providers (e.g. physicians, attorneys, financial planners, consultants) might be treated less favorably than those from construction or manufacturing companies. Be sure to discuss how your method of compensation and/or legal structure may need to change in order to get the highest deduction possible.
How will the changes impact my charitable giving? Do I need to adjust my giving timeline?
There’s good news and bad news on the charitable giving front. On the plus side, a donor’s ability to deduct charitable donations actually increased. Previously, donors could deduct up to 50% of their income from cash donations; now, that’s expanded to 60%. But, rules surrounding itemizing have also changed. The final legislation roughly doubles the standard deduction, to $12,000 for individuals and $24,000 for couples. If you’ve itemized in the past, there’s now a higher bar to clear.
There are a number of strategies we can recommend to plan your giving strategically and maximize deductions, including “clumping” donations together every few years and utilizing a Donor-Advised Fund. But, deductions should not be the primary driver for giving. At Sound Stewardship, we believe in making donations because you feel passionate about a cause or a ministry. We give generously because we’re called to give generously. The tax deduction is a byproduct of living in the United States, and while it may be a nice perk, it should never be our motivation for donating. We’ll continue encouraging people to give generously for the rest of their lives.
How does tax reform impact how I save for education for my children or my grandchildren?
Planning ahead for education is always wise, and it’s important to discuss with your advisor. If you’ve been saving through a 529 Plan for college education, you now have more options for handling future education expenses. The law expands the kinds of education you can fund with money saved in a 529 Plan, which now includes private and religious schools for Kindergarten through 12th grades. Discuss with your Wealth Advisor how this might change the way that parents and grandparents choose to use 529 Plans.
The new bill also impacts special needs planning for people disabled before age 26. Now, those saving for a child with special needs can roll that child’s 529 Plan money into an ABLE Account tax-free. Have a loved one with special needs? Ask us about ABLE Accounts and how they might complement your 529 Plan savings strategy.
What impact will the tax bill have on my long-term plan?
Long-term financial success is all about staying the course. Pivots and adjustments can be valuable tools along the way, but it’s never been more important to hold fast to timeless principles. Remain focused on living within your means. Save and invest at levels that are right for your family. Stay intentional about giving generously. These and the other Sound Stewardship Principles are the building blocks of healthy finances. Because they’re based on historical wisdom, they work regardless of economic conditions and the latest tax laws.
We’re here to help you navigate the latest tax reforms, and we’re by your side every step of the way. Contact us today to connect with a Sound Stewardship Wealth Advisor.
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