Broker Check

Independent Financial Advisor Resources: Taxes

| August 25, 2019

Now that the first tax returns have been filed since the 2017 Tax Cuts and Jobs Act took effect, it may be an opportune time to help clients plan for next year. Each time the tax rules change, investment portfolios may be affected. The Cutter & Company web site is loaded with content – articles, presentations and videos - that can help independent advisors assist their clients on a wide variety of financial topics, including taxes. The Resource Center is a good place to start getting acquainted with some of these tools.

Understanding tax strategies is integral to a sound financial approach. Conversely, ignoring the tax ramifications of investment portfolios may result in lower overall performance. Our Tax Management Strategies presentation  cited a study by Morningstar, Inc. which found that during the 92-year period ending in 2017, the average annual stock return of 10.2 percent shrank to 8.2 percent after taxes.

The Tax Cuts and Jobs Act represents the most sweeping overhaul of the U.S. tax code in more than 30 years. For millions of Americans and businesses it means an altered financial and investment landscape with new opportunities and challenges in the years ahead. Here are just a few of the highlights:

  • Businesses likely benefited from several changes, including a lowered business tax rate from 35 percent to 21 percent.
  • The Tax Policy Center projected taxes would fall for all income groups and result in an increase of 2.2 percent in after-tax income.
  • Among other items, the Tax Cut and Jobs Act repealed the Alternative Minimum Tax and placed a $10,000 cap on “State and Local Income Tax” Deductions.
  • For most individual taxpayers, changes kicked in for the 2018 tax year, and some are scheduled to expire in 2025.

The presentation reviews strategies involving tax-exempt investing and tax-deferred investment vehicles. There are several hypothetical examples used for illustrative purposes only, which are not intended to represent the past or future performance of any investment. Actual returns will fluctuate.

Other tax-related content ranges from the interesting to the practical. There is a short fact-filled video that contains interesting Facts About Income Tax, including that the number of words in the tax-code increased 107,000 percent between 1913 and 2017. The video also added up the total cost of complying with the tax code, which the American Action Forum said is more than $194 billion.

Also available for review and sharing with clients is an article that covers the Six Most Overlooked Tax Deductions. Americans regularly overpay because they fail to take tax deductions for which they are eligible. Encouraging clients to review their situations can help them avoid paying the IRS more than is legally required. Consider also an article that lists Red Flags for Tax Auditors. This piece explores at a high level some of the guidelines used by the IRS in selecting tax returns for review. And you might suggest clients look at the “Dirty Dozen” Tax Scams to Watch For which is a list the IRS compiles each year that looks at various ways that have been devised to separate clients from their money.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.