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How clients can avoid an unwanted tax surprise: Tax Strategy Scan

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Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Here’s how to help clients avoid being blindsided by their 2019 taxes
Clients could be in for a surprise at next year's tax season because of changes to the tax code, according to this article in The Washington Post. To avoid this, taxpayers are advised to review their tax withholding to ensure that the withheld amount is enough to cover their tax bill. The IRS recommends taxpayers to use its tax withholding estimator tool to ensure the amount withheld from their paycheck will be enough or allow for a substantial refund.

Ways HNW clients are maximizing this tax loophole for education funding
The tax benefits of a 529 savings plan make a great case for high-income clients in light of valuable income tax benefits that are no longer available under the new law, according to this article in Forbes. “The biggest benefit of frontloading, or superfunding a 529 plan is that by doing so, taxpayers are able to shelter a large amount of assets from their taxable estate,” according to an expert, who added that “529 plan contributions are considered gifts for tax purposes and qualify for the annual gift tax exclusion.”

Shrinking tax burden comes with consequences
Using some strategies to reduce a client’s tax bill could result in undesirable outcomes, according to this article in USA Today. For example, clients don't rebalance their portfolio to avoid paying taxes on capital gains, however this could lead to greater exposure to risks. "That's why we recommend balancing, even if it means paying taxes on capital gains," according to a financial advisor.

3 things that permanently lower Social Security benefits
Clients can reduce their Social Security benefits permanently if they opt to file before reaching their full retirement age, according to this article on Motley Fool. Their retirement benefits will also be lower if they fail to record at least 35 working years. Retirees whose combined income exceeds a certain threshold could also result in taxation of a certain portion of their Social Security benefits, and this could permanently reduce their benefits.

Careful planning and frugality can lead to early retirement – but only if clients are truly committed to the goal.
September 12

This can protect clients’ savings if a family member requires long-term care
Clients from families with longer expected life spans are advised to consider buying an appropriate insurance policy to cover the cost of long-term care in retirement, according to this article in MarketWatch. The earlier they get the coverage, the lower the premiums they will pay. LTC premiums may be tax-deductible, and the insurance benefits will not be subject to federal income taxes.

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