Seize the Planning Opportunities the New Tax Law Offers

by Laurie A. Siebert, CPA, CFP | Feb 28, 2018
Pennsylvania CPA Journal
With passage of the Tax Cuts and Jobs Act of 2017, numerous questions will arise as to how the changes will impact clients and what, if anything, they should do differently. Despite promises of simplification, many clients will still need help. Consider tax education, communication, and marketing plans to help clients realize this.

At the end of 2017, some taxpayers rushed to prepay their taxes and future charitable giving in the hope of getting deductions that may no longer be available or beneficial in 2018. Some taxpayers acted on their own, and others sought counsel. Interpretations of the tax rules had to catch up, and now it seems many taxpayers paid property taxes early in vain; they were not deductible if they had not yet been assessed. Others were slow to realize that they were still subject to the Alternative Minimum Tax in 2017, and they were not going to benefit from paying taxes early regardless.

Reacting versus proactive planning has consequences, and that is a point that should be emphasized.

To simplify taxes, the new law raises the standard deduction but also eliminates a significant number of deductions previously eligible to be itemized. Many taxpayers may no longer see the benefit of paying for tax planning advice or for using a CPA to prepare their tax returns. CPA firms have to ask themselves how this might affect their own revenues and business model. Do clients understand that planning is more than just tax preparation? What communication should go out to clients?

The first step is to shift the conversation from the transactional aspect of tax preparation to the financial impact of using the tax return for planning. The return can serve as a barometer of a client’s financial health. This will result in stronger client relationships and ongoing engagement. Just planning for the benefits of having children can be overwhelming with the child tax credit increasing to $2,000 per child under age 17 and the income thresholds increasing substantially. For example, planning opportunities for lower-income earners might entail generating enough taxable income to retain the full credit. Now that the threshold has increased from $110,000 to $400,000 for married joint filers, some couples will see a child tax credit not available in the past. Taxpayers may need to look at managing that income a little more closely to maximize their credits. With this additional engagement work, CPA firms can put more emphasis on planning to generate revenue than hourly preparation fees.

Other areas for planning that account for children include the nonqualifying dependent credit, the expanded use of 529 education savings plans for grade school and high school private education, and the “kiddie tax” use of estate and trust rates. Tax planning has become a family event, and it is an opportunity to educate multigenerational clients about reaching their goals for retirement, education planning, and estate planning.

Gifting was a strategy frequently used in estate planning that has far less appeal now that the federal estate tax exemption moves to $11.2 million per taxpayer. Gifts of appreciated assets during lifetime would generally carry the cost basis of the donor to the recipient. Gifting had removed from the donor’s estate any further appreciation on an asset, but it also voided the valuable “step-up” in basis benefit. So, to avoid the 40 percent estate tax at the donor’s death, the recipient had paid the capital gains tax on the full appreciation but at an expected lower rate. Now, with the much larger federal exemption, more high net worth clients can retain appreciated assets and avoid federal estate tax while providing their beneficiaries a step-up in basis where applicable.

Small-business planning will be on steroids over the next year or more as planners navigate appropriate entity choices, income thresholds, wages, and deductions.

Careful planning for both the planner and taxpayer will be imperative because tax reform for individuals currently has an expiration date. Uncareful planning today may have unintended consequences several years down the road.

Financial planners must find the time to explore the many aspects of the Tax Cuts and Jobs Act that are readily glossed over in an attempt to make it sound simpler. Educate yourself. Then embrace the importance of communicating to clients that the power of planning is not in the yearly tax preparation transaction, but rather in the application of the law to their own situation and how that can change as their circumstances change. Then, communicate the message effectively. This could be the most important planning for you and your clients that you have had to do in a long time.

Laurie A. Siebert, CPA, CFP, is an investment adviser representative of Valley National Financial Advisors, and securities are offered through Valley National Investments Inc. (member FINRA, SIPC). She is a member of the Pennsylvania CPA Journal Editorial Board, and can be reached at

For more information on 2017's landmark federal tax reform, check out the Federal Tax Reform Guide presented by the Pennsylvania CPA Journal.
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