by George M. Smith
Leading up to the new tax legislation that came out last year, many felt the need to speculate about what it would mean for them. Some even went to the point of worrying about it. I suspect that many of the “worriers” will find they will fare just fine. Ultimately, like with any other legislation, some will benefit and some will not.
So the rules have changed, and sometime in the future they will change again, which leaves you with a choice. You can panic, get mad, ignore the facts, get political or otherwise do nothing. Or, you can take steps to make it work for you the best way you can since opting out of paying taxes is clearly not a wise choice. If you don’t know what this new law means for you seek advice, but seek it in context of a broader financial plan. You want to avoid letting the “tax tail wag the investment dog,” as our experience reveals managing taxes is rarely the most important part of a plan. After all, if you are the most tax efficient person on the planet but aren’t saving enough for retirement a re-focus may be at hand.
For many, nothing will significantly change but depending on your tax situation a lot may change for you. As an individual or family, the new legislation may have an effect on what you contribute to your retirement plan, the type of IRA you use, the investments you own, your charitable gifting goals, your mortgage/debt structure and whether you need to itemize. For business owners, it may require a change in business structure (i.e. change from S-Corp to C-Corp) or it may have influence on your company’s retirement plan structure, pay/benefit structure, and more. Some of these changes could be meaningful so they require attention.
As fee-only financial planners, we look at each client’s tax circumstances as part of a complete personalized plan but we don’t give tax advice. With that said, our experience does afford us the ability to answers certain questions where investments and taxes intersect. We also identify key times where you should talk to your tax professional. Our approach is to work side-by-side with a client’s tax professional, and their estate attorney, as needed, to make sure that their entire financial picture is integrated, effective and supportive of their individual goals. There is no benefit for us to overstep our bounds and give bad advice in areas where we are not trained to advise. On the other hand, you should also not accept advice from other professionals who are not licensed and trained to provide financial advice.
If you are like most of our clients you want to get the most out of every dollar you can. You want to steadily and confidently move towards what is important to you. With the recent legislation in mind, if your various advisers are not communicating with each other for your benefit, insist that they do or find new ones. Ask yourself how good it would feel to know that you have a complete and competent team behind you empowering you toward your goals. In fact, there is a proverb that sums it up perfectly: “Plans fail for lack of counsel, but with many advisers they succeed.”