American households in the top 1% of the income bracket will get an average tax cut of around $50,000 next year, according to a recent report cited by FA magazine. The effect of the tax cut on the remaining 1% is far more complicated, however, tax experts tell the publication.
The top 1% of U.S. earners, or those making $733,000 and more, will save an average of $50,000 in 2018, according to new analysis by the Tax Policy Center cited by the publication. Those earning $3.4 million or more next year, which make up the top 0.1% of U.S. earners, will save on average $190,000, FA magazine writes.
But the overall effect for financial advisors’ clients is more nuanced, Nicholas Lascari, a CPA and partner at Gordon J. Maier & Company, tells the publication. That’s because the Tax Policy Center analysis doesn’t account for itemized deductions and exemptions, he tells FA magazine. His firm plans to conduct most of the substantive planning during the summer, Lascari tells FA magazine.
Middle-income clients, or those with a taxable income of $150,000 to $420,000, will get more of a “mixed bag of tax wins and losses,” Bellevue, Wash.-based certified public accountant Jim Erickson tells the publication. These households are likely to benefit from the 20% tax deduction now applicable to pass-through entities, but will lose out on large itemized deductions and exemptions, he tells FA magazine. Many clients, for example, are likely to get fewer deductions because they pay significantly more than the $10,000 cap placed on deductions from state and local taxes paid, the publication writes.
“I suspect 40 percent of my middle-America clients will see higher 2018 taxes,” Erickson tells FA magazine. Clients earning $1 million or more and high net worth clients will get a tax refund, however, he tells the publication.
Nonetheless, even wealthy clients will need to analyze their overall tax picture, FA magazine writes. For example, in states like Virginia, taxpayers currently have to take a state standard deduction if they also use a federal standard deduction, Richard Beason, a CPA working in Roanoke, Va., and Hilton Head, S.C., tells the publication. If state tax laws aren’t changed, Virginia taxpayers who previously itemized their deductions but now opt for a standard deduction will have to pay their state taxes taking the standard deduction as well, he tells FA magazine.