Miami Today quotes Mason Williams Road Tax Reform
Road to tax reform strategy paved with tried-and-true adages
Written by Catherine Lackner on December 5, 2017
With much about tax reform remaining up in the air, wealth advisors are urging their clients to proceed cautiously and keep some tried-and-true adages in mind.
"We still have a long road ahead to arrive at tax reform," said Jamie Byington, tax partner in the South Florida office of Cherry Bekaert, an accounting, advisory and tax firm, via email.
Although the House and the Senate have each passed a version, they contain significant differences. "The two versions will still require conference agreement to create final reform," she said. "At this point, it is difficult to say what reform will look like in its final version. I believe there is a reasonable chance for tax rate reduction (as opposed to total reform) by year-end, particularly for corporate taxpayers. It is also likely that various write-offs, typically claimed by individuals, will be severely limited. There appears to be some momentum for reform and/or tax rate cuts, so I suspect some version of legislation will be signed by the president this year."
"Although significant planning is difficult without knowing the actual provisions to be passed, it is generally safe to say that the adage 'defer income and accelerate deductions' can be applied," she said. "If tax rates drop, as expected, deductions will be more valuable in 2017, especially if some are eliminated by the new tax laws. Likewise, income would be taxed at lower rates in 2018, leaving more cash for my clients."
Ms. Byington said she urges clients to consider several factors, including selection of tax entity type, methods of accounting, deductions, writing off fixed asset additions, charitable contributions, compensation and benefits (new limits on deductions will increase the cost of many fringe benefits), benefit plans and their design, international business structuring, estate and gift tax planning, and consideration of how states will conform to the federal changes.
"The tax reform legislation is still a moving target," said Mason Williams, chief investment officer at Coral Gables Trust, via email. "Odds are the legislation will get passed before end of 2017, but the reconciliation process will ultimately determine the actual law. The House and Senate agree on a lot of items, so the final version probably won't contain too many surprises from what we have heard thus far."
"The Republican agenda is riding on the success of this tax package and markets are positioned heavily for a market-friendly outcome. Tax treatment of capital gains and dividends will largely remain the same," he said. "Being tax-efficient by offsetting capital gains with capital losses still will hold true next year and beyond. There could be some potential changes to investment strategy regarding municipal bonds for non-Florida residents. There could be a surge in demand for our clients in states like New York, California and New Jersey if the deductibility of state tax goes away."
"However, the consensus believes tax rates are not going to be low enough to affect that market and municipal bonds have additional benefits beyond tax deductibility. It is wise to not perform any major overhaul to a portfolio until there is more clarity on the outcome. If we get legislation this year, we are also advising to defer any income, if possible, into 2018, especially for individuals in the highest tax bracket."
"Most of my clients are concentrated in the real estate and construction industry," he said. "There are significant opportunities in the proposed provisions for my clients in developing strategies to operate in a tax-efficient way under the new tax regime."