The Big Tax Questions for April 15th

After months of seeing how the new tax rates are affecting paychecks, most people want to know how it’s all going to shake out come April 15th.

Here are two questions our clients have been asking most frequently. How is the $10,000 deduction limit on my state income and property taxes going to affect my return? Should I alter my estate planning strategy as a result of the changes in the estate tax?

Tax Rate Reduction – with a Catch
While many of us have have seen our effective tax rate go down in 2018, those of us in high income states like New Jersey are not going to enjoy the benefits of it. The big reason for this change is because the state income and property tax deduction, which we all enjoyed is now limited to $10,000.

For instance, a couple who earned between $100,000 and $177,000 had their tax rate reduced from 25 percent in 2017 to 22 percent in 2018. Their standard deduction went up from $12,700 to $24,000. That’s the good news. But now, with the limits of the state income and property tax deduction, the rate reduction on one end is offset by the limitations on the other.

Yes, the Kids will be Alright
Under the new law, taxpayers will be able to leave as much as $11.2 million per person or $22.4 million per couple free of estate tax upon their death. This change is in effect for the next seven years and could be reduced to $1 million per person after that.  How people are preparing to take advantage of this much higher limit is by doing what we call, “up-stream gifting.” It is a practice of transferring investments to the older generations so that when the older generation dies, the younger generation can re-inherit the amount free of estate taxes, with a step-up in cost basis that the IRS allows with inherited assets.

This strategy allows taxpayers to lower the amount of their investments that will be subject to capital gains taxes later. This may sound counterintuitive, but we are working with clients to help them understand the strategies that would work best for them and their families.  

The team at Avrio Solutions sits down with all of our clients during tax season. Together we determine which strategies work best, and get ahead of the challenges as well as benefits coming their way.
Here are other questions we can resolve for you during that discussion:

  • How does the 20 percent deduction on flow-through business income work?
  • Does it still make sense to itemize expenses? 
  • How does the new law affect the tax benefits of charitable giving?

If you are currently not an Avrio Solutions client but are concerned about how these sizeable changes are going to affect you, contact us today and we will set up an individual appointment to discuss your particular concerns.