Year-end tax ideas — be careful about speculating on Trump’s policies

It’s time to start making year-end tax plans. There is a lot of opinion and speculation on President-elect Trump’s policies and I think some investors are making decisions without knowing for sure what the actual policies will be. We’re a long ways away from actual law changes.

I think it is speculative to assume Trump will pass all of his proposed tax law changes. Further, if you are trying to manage year-end, don’t just rely on us “financial planners” for pointed tax advice. While we do have training in this area and we’re grateful we can be of service this way, it doesn’t qualify any of us as a dedicated tax-advisor unless we’re certified and most importantly experienced in specific tax advice. Experience requires a lot of attention and time to this very granular discipline. Normally that’s best found with a CPA (certified public accountant) and/or EA (enrolled agent). Given the potential complexities between this year and next year, working with a qualified tax advisor is important.

Here are some practical reasons why I personally don’t/won’t serve as the dedicated tax advisor to my clients, and why I think it’s very important they have their own tax advisor separately — but coordinated — with their financial planning advice:

1. A firm like mine simply wouldn’t have the infrastructure in place. Dedicated tax advice is both intellectually and technologically capital intensive. Similarly, a dedicated tax firm usually lacks the infrastructure for what people like myself do, which is why most qualified tax advisors don’t attempt to be both a tax advisor and financial planner; they’d be spread way too thin.
2. Tax law changes over the past decade have made tax preparation and analysis exponentially more complex. Tax detail and advice requires full-time concentration. Further, the professional standard of care a tax attorney, CPA, or EA offers is specific to tax advice and is much higher than that of a certified financial planer (CFP).
3. Only a qualified tax advisor, like a CPA or tax attorney, can properly represent you in an IRS tax audit. Having an existing relationship with a CPA or tax attorney would be invaluable if an audit occurs.
4. Further, if you work with a tax attorney, you also get client-attorney privilege of confidentiality, which a CFP like myself, or even a CPA, cannot provide. This is a critical benefit if you might face any legal questions in your tax advice. Your financial advisor and even CPA should never be giving you legal advice, especially sensitive confidential advice.
5. Finally, and something that’s a core house philosophy of mine: You simply should have multiple, independent, professional “voices” working as a team to help you with your wealth. Ideally, I think separate, independent (i.e., not conflicted) firms should provide these services.

(Continued)

If you work with a qualified CPA or tax advisor and are planning for tax law changes, heading into 2017 would be the logical time to evaluate your tax strategies. I believe it’s reasonable for you to talk with your tax advisor about the probability that 2017 will likely look no worse than 2016 in terms of tax brackets, and at best will feature lower brackets. If so, it suggests the following big-picture ideas:

1. Bunch deductions this year if you don’t trigger the alternative minimum tax. Attempt to defer income into next year, if possible. (Again, if you’re subject to the alternative minimum tax you should definitely have a tax advisor.)
2. Further, if you are a small business owner, you may find it beneficial to do similar strategies for your business, if possible.
3. Possible changes support strong consideration to investment tax loss harvesting this year. Further, deferring capital gains appears sensible assuming you don’t need the funds today and all else is equal in your planning life.
4. Consider making larger charitable donations this year or even funding a donor-advised fund, given charitable deductions may be less valuable in future years if tax rates go down and/or the standard deduction is raised.

Again, if you think tax rates will change in 2017 and that you will benefit by it, you should contact your qualified tax advisor to review tax-planning strategies and do so soon.

I hope this inspires you to make progress with your dedicated tax advisor to optimize year-end tax planning needs.

MICHAEL DUBIS is a fee-only CERTIFIED FINANCIAL PLANNER™ and president of Michael A. Dubis Financial Planning, LLC. He previously served as lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at financialperspectives@gmail.com.

Disclaimers:
This article contains the opinions of the author. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services described in this website or that of the author’s.

Mike Dubis does not guarantee the relevancy, appropriateness, or accuracy of any outside information or links. Mike Dubis does not render or offer to render personalized investment advice or financial planning advice through this medium. All references that might be made to an investment or portfolio's performance are based on historical data and one should not assume that this performance will continue in the future.

THIS COMMUNICIATION MAY NOT BE USED BY YOU AS A RELIANCE OPINION WITH RESPECT TO ANY FEDERAL TAX ISSUE DISCUSSED HEREIN AND IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY YOU FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU BY THE INTERNAL REVENUE SERVICE.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Michael A. Dubis Financial Planning, LLC), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Michael A. Dubis Financial Planning, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Michael A. Dubis Financial Planning, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Michael A. Dubis Financial Planning, LLC’s current written disclosure statement discussing our advisory services and fees is available for review upon request. If you are a Michael A. Dubis Financial Planning, LLC client, please remember to contact Michael A. Dubis Financial Planning, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services.

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