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Tax law’s ‘perfect storm’ for Roth IRA conversions: Tax Strategy Scan

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

How the new law created a ‘perfect storm’ for Roth IRA conversions in 2019
With the individual tax rate cuts under the new tax law and the possible increase in tax rates on retirement income, doing a Roth conversion can be a wise financial move for clients, especially those who expect to stay in their current tax bracket or move to a higher bracket after they retire, according to this article on MarketWatch. However, converting traditional IRA assets into a Roth can trigger a taxable event and this could push them to a higher tax bracket. “Low current tax cost for converting + insurance against higher tax rates in future years on income that will accumulate in your Roth account = continuing perfect storm for the Roth conversion strategy,” an expert writes. Clients can minimize the tax bite and avoid this scenario by spreading the Roth conversion over multiple years.

Prevent tax return anxieties with these steps
Preparing tax returns could be complicated this year as a result of the many changes to the tax code under the Tax Cuts and Jobs Act, according to this article on CNBC. To minimize the stress, clients are advised to file their returns as soon as they gather all the information they need to prepare the forms. They should also familiar themselves with the new tax law and apply the changes to maximize tax savings. Filing electronic returns is recommended, as this will make it easier for clients to track their filing status and tax refunds.

Self-employed? 6 tax breaks your clients can't afford to overlook
Self-employed taxpayers should ensure that they claim the tax deduction on mileage of their vehicles on their 2018 returns to save on taxes, according to this article on Motley Fool. They may also qualify to deduct business travel expenses, health insurance premiums and 50% of their self-employment tax payments. Other tax breaks that self-employed workers should take advantage of are the home office deduction and the Child and Dependent Care Credit.

9 states with no income tax
Clients who want to avoid state income taxes may want to relocate to Alaska, Florida, Nevada, and New Hampshire, as these states impose no taxes on income. Residents in South Dakota, Tennessee, Texas, Washington and Wyoming also owe no state tax on their income. However, some of these states impose higher property and sales tax rates to generate the needed revenue. “Texas, for example, has some of the highest property taxes in the U.S., and Tennessee, the second-highest average sales tax,” according to the article.

To prepare for questions — and their own filings — planners should note these tips.
November 27

Tax credit for the elderly or disabled: Are your clients eligible?
Retirees and disabled persons can save as much as $7,500 on taxes by taking advantage of the Senior Tax Credit for the Elderly and Disabled, according to this article on Fox Business. To qualify, taxpayers should be 65 or older and retired because of a disability, received taxable disability income last year, and have not reached the mandatory retirement age for their employers by Jan. 1, 2018. Moreover, their adjusted gross income should not also exceed the income limits indicated in IRS Publication 524.

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