Tax Planning - Preparation and Accuracy goes a LONG way


The current changes to the tax code this year has everyone in a tail spin. It is the largest overall of the tax system in 30 years.  Sensational headlines and impulsive reactions only compound the confusion.  But even in these times of adjustments, thorough and accurate tax planning is always an excellent strategy to help recognize any tax burdens and assist your tax team before the April filing deadline.

So, how do you establish a thorough tax plan? We believe that a comprehensive tax plan encompasses two things; organization through accurate and TIMELY record keeping and education through an understanding of the new Tax Cuts & Jobs Act. Being proactive with these two very important topics is the “backbone” of a complete tax plan that can help you and your tax team when April approaches.

The tax code changes for 2018 have sparked a lot of confusion. There have been significant changes – but some of these changes do offer some tax opportunities.  Only a few will be mentioned here, but your tax team should be an excellent resource to help you figure out which to investigate further to lessen your tax burden.

Using Donor-Advised Funds – Donor-advised funds are a simple, flexible and tax-efficient way to give to charities.  They are like a charitable investment account that accepts cash, securities or other assets, making you eligible for an immediate tax deduction.  These donations can then grow, tax-free, allowing you to support the charities over a period of time.  Donor-advised funds are the fastest-growing charitable giving vehicle in the US because they are one of the easiest and most tax-advantageous ways to donate to charity.

Potential Benefits to Business Entity Re-Structuring –   There are two changes to the tax code that could majorly affect the choice of a business entity.  There is a new 21% max C Corporation tax rate (reducing the overall tax liability for C Corps) and a new 20% deduction at the individual level for “qualified business income” from a partnership, LLC, S Corp and sole proprietorship (excluding businesses that have a “specified service trade or business”).  Many of these pass through entities are rather complex and should be discussed and reviewed with your tax advisors.

The Estate Tax Gap – The Tax Cuts & Jobs Act doubled the FEDERAL estate tax exemption to $11.8 million per person.   This exemption increase basically repealed the FEDERAL estate tax for the majority of Americans.  However, as you already know, Federal and State taxes are two completely different filings.  The new tax code has NO DIRECT BEARING ON STATE INHERITANCE TAXES.  Many states continue to use the OLD federal estate tax exemption – leaving roughly a $5 million gap.  Furthermore, New York State adds an extra complication – aka the “CLIFF RULE” – which states that if an estate exceeds the exemption by more than 5% (a buffer of about $265,000), the EXEMPTION IS IGNORED AND THE ENTIRE ESTATE GETS TAXED.  That could potentially be a huge tax hit.

Establishing a Tax Deductible Defined Benefit Retirement Plan – There have always been substantial benefits to establishing and maintaining a tax-qualified retirement plan, but the recent changes to the tax code can add even more significant benefits.  Namely, because qualified retirement plan contributions lower the taxable income of business owners of pass-through entities (sole proprietorships, partnerships, LLCs and S Corps), increasing or establishing contributions can allow business owners additional tax deductions as a Qualified Business Income (QBI) that they would not previously have.

Let’s give a simplified example – for a tax client filing jointly

Net business income $415,000 $415,000
Contribution to qualified plan 0 $100,000
Net Business income BEFORE QBI deduction $415,000 $315,000
QBI deduction DISALLOWED (beyond max limit) $63,000
Taxable Income $415,000 $252,000


As you can see, establishing and maintaining a tax deductible retirement plan not only helps you save for the future, it can help you significantly lessen your tax burden.


These are just a few examples of how the Tax Cuts and Jobs Act can significantly affect how your taxes will be filed for 2018. It is overwhelming, but NOW is the time to gather your information and begin the conversation with your tax advisors on what your best course of action should be. DO NOT WAIT UNTIL THE NEW YEAR – seize the moment now and be proactive.  Organization, accuracy and education are the best tools that you and your tax team have to plan your best tax strategy.