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Tax Strategies for High Income Earners: What You Need to Know

We are right in the middle of the 2017 tax filing season, and there are several tax strategies for high income earners that should be considered with the signing of the new tax reform in December 2017. When we use the term high income earners, we are referring to those who fall in the upper middle class and high-income ranges. Single filers who report income of $157,500 and above and married couples who file jointly with an income of $237,950 or more fall into this category and are encouraged to learn more about how the new tax law will affect their 2018 tax situation.

Questions to consider in your 2017 tax planning and beyond

Let the conversations begin. While the new law will not affect 2017 taxes, it creates the ideal opportunity to meet with your team of tax specialists and wealth management advisors to strategize your tax planning for 2018.

How does the Tax Cuts and Jobs Act of 2017 affect my tax planning?

Ask your tax advisor if the new tax reform law will affect your tax bracket. That question is key because changes to tax brackets are among the main changes in the plan for 2018. While these remain the same for 2017, there are changes for both single filers and for married taxpayers who file jointly.

If you will be affected by the new tax law, now is the perfect time to start thinking about your future tax planning strategies.  Questions and conversations to consider may differ depending on each household situation. Ask your advisor how the new tax law will affect your financial goals. If you have been subject to the Alternative Minimum Tax, talk with your tax advisor and financial planner to determine how tax reform may affect you in the future. Likewise, if you expect substantial medical expenses in 2018, talk with your advisor now about how this will affect your tax situation. Here are other questions you may want to talk about with your tax advisor:

Does the law affect my ability to pay for education?

There are some changes to how parents can invest in their children’s education.  Previously, the 529 plan created a way for parents to save money for college.  With the new law, the 529 plan now includes saving for the elementary through high school years. This applies to both private and public schools.

What could this mean for families? Households can take up to $10,000 in distributions from the 529 plan to pay for K-12 school-related costs like tuition and supplies – in addition to college.

Talk with your tax advisor about how this change may play a role in your tax planning in the year ahead.

Should I think differently about my charitable contributions?

Depending on your motivations for giving, the new tax law may change how you look at charitable giving. With standard deductions set at $24,000, those who used donations to itemize their deductions may no longer have the same incentive to do so. Likewise, caps on tax deductions for state and local tax payments may affect your donors’ charitable spirit. In fact, charities expect a significant drop in donations for these reasons, according to the Council on Foundations.

If you are motivated by charitable mission, your charitable giving strategy may not change. But, if the financial changes brought about by tax reform will affect you, you may find yourself reconsidering your strategy. To assess how the new tax law will affect your charitable giving, ask your tax advisor now. That way, you’ll be prepared when for year-end.

How should I invest any tax savings?

After talking with your financial advisor and tax planner, you may discover the new tax laws will result in tax savings for you. This presents an ideal opportunity to invest dollars that would’ve otherwise been directed to taxes into other areas. Ask your advisor about tax efficiency in your planning strategy. Whether that plan consists of investment tools like a 401(k), Roth IRA or the purchase or sale of real estate or investments, implementing a solid plan that caters to your financial goals is something to act on now.

As a high-income earner, you have distinct tax planning needs. Expand your knowledgebase on the impact of the new tax law by talking with your tax planner and financial advisors. To schedule an appointment to review your portfolio and plan for 2018, call (920) 230-2215 or contact us.