As 2018 is quickly coming to a close, we’ve been busy wrapping up year-end planning. Last year’s last-minute passage of the Tax Cuts & Jobs Act (TCJA) sent us scrambling a year ago to take advantage of opportunities that were going away. This year-end has been a bit calmer when it comes to tax changes but has also forced us to approach things differently. We’ve had fun strategizing for our clients and were honored to lend a hand to several reporters looking to better understand and communicate the new opportunities. David has spoken with several journalists over the past few weeks and got quoted a handful of times:
ThinkAdvisor: 3 Tax Moves to Make Before Year-End
Investment News: Top 3 planning moves for advisers under new tax law
Financial Regulation News: CPAs survey examines post-tax reform adjustments
Below are our expanded thoughts on one of the most popular topics we’ve discussed with clients this year:
Itemized Deductions & The Impact on Charitable Contributions
The changes to itemized deductions mean fewer taxpayers will itemize under the TCJA. State and local taxes (SALT) are limited to $10,000 and the only other notable deductions available for most are mortgage interest and charitable contributions. Between state income taxes and local property taxes, most of our clients are hitting the $10,000 SALT limit. Therefore, married couples filing jointly who also pay at least $14,000 in qualified mortgage interest will continue to itemize, since combined with SALT they will exceed the new $24,000 standard deduction for joint filers. For these taxpayers, charitable contributions still have the same impact of reducing your tax bill at your marginal rate that they have in the past.
Conversely, taxpayers without a mortgage may not receive a tax benefit on charitable contributions until they exceed $2,000 (if filing single/separately) or, if filing jointly, until giving exceeds $14,000! For many, this will be a disappointment, but not change their giving behavior, as taxes were never the primary motivator.
An interesting opportunity arises though for those with $10,000 of SALT and a significant mortgage, but where the annual interest is a bit shy of $14,000/yr. For example, a married couple with $10,000 of SALT, $13,000 of mortgage interest, and $1,000 of charitable contributions would not receive any tax benefit over simply taking the standard section of $24,000. However, each dollar they give to charity above that would reduce their taxes at their marginal tax rate. For example, if their marginal tax rate was 30% (Fed + state) they’d save $0.30 for each dollar they give. Therefore there’s an opportunity for them to “bunch” their charitable contributions. By giving $2,000 this year and $0 next year instead of $1,000 in each, they would save $300.
Using a donor-advised fund allows you to optimize this bunching strategy even further. Continuing with the example above, the married couple could contribute $6,000 to a donor-advised fund in year one, reduce their taxes by $1,500 and then distribute $1,000 per year from their donor-advised fund to their favorite charity every year for the next six years. This would accomplish their objectives of giving $1,000 per year, while also maximizing their tax deduction that would otherwise be worthless. This a great planning opportunity for those who are charitably inclined and able to front-land their gifts.
If you think the above situation applies to you but didn’t take advantage of it this year, don’t worry, the same opportunities will be available for 2019.
The goal of early retirement is attractive to many people, but for those serious about the FIRE movement, it’s more than just a goal, it’s a lifestyle. For those people, the freedom to spend their time how they want is what drives them to aggressively save during their working years and “retire” in their 30’s or 40’s. This requires discipline and planning, and David was happy to lend his expertise to a reporter for the Journal of Accountancy. Check out the article to learn more about this movement and some of David’s insights.
We work with clients of all kinds – from young entrepreneurs to retirees, we have a diverse workload. However, this spring we received a unique request: consulting on another financial planner’s financial plan! The request came from Roger Ma, a well-respected independent advisor in New York City. We feel honored that the Mas trusted us to review their finances, and I think it’s safe to say that we all enjoyed the experience. Roger shared why he chose to work with us in his article on Forbes.com about “Why I Hired A Financial Planner – Even Though I’m A Financial Planner Myself.” Thanks for the kind words, Roger! We think we’re pretty great too… here’s why.
We build financial plans to support our clients’ goals and values. We have a fiduciary responsibility to provide clients with the best advice at all times. But what’s best for one person isn’t necessarily best for another. During the onboarding process, we take clients through a series of life planning exercises to learn what’s truly important to them, and from there we build a financial plan that supports and inspires them to live the life they truly want.
We’re at the top of our game technically. We work hard to make sure we’re always learning about the latest financial planning topics and coming up with creative strategies to maximize the bottom line. We’ve earned some of the top credentials the industry offers, attend multiple professional conferences each year, constantly read blogs, books, and journals, and network with other professionals in formal and informal settings. We are truly passionate about financial planning.
Like many professions, financial planning is an art and a science. We deeply care about our clients, and we’re honored to use our expertise to help others lead richer lives.
Hey there! It’s us, your friends at Laminar Wealth. Haven’t seen a blog post from us in a while? Yeah, we know. We’ve been a little busy. Here’s what we’ve been up to:
Keeping two little humans alive. For those of you who don’t know, we had our second daughter Jane in March. She’s been a wonderful addition to our family, but (not so) surprisingly has been quite a bit of work. Ellie is a natural at taking on the role of bossy big sister, Mary has learned an entirely new meaning of multitasking, and David is… surviving :) In all seriousness, we never realized how much love and joy children could bring to our lives!
Taking care of our clients. We believe that part of what makes us great at what we do is how much we truly care about our clients. When life gets busy, we focus on the items most important to us, and from a professional standpoint that means making sure our clients never miss a beat.
Keeping current on the latest financial planning trends. We want to make sure we’re always at the top of our game, and David lent his expertise to a journalist for the Journal of Accountancy on the FIRE (Financially Independent/Retire Early) movement. Look for an upcoming blog post about the insights David shared in the August issue.
New business development. What keeps us going from day to day is knowing how much we help people. We were lucky enough to help another financial planner and his wife feel more confident with their own plan. He was kind enough to give us a shout-out in an article on Forbes.com; be on the lookout for a post with additional bragging.
Enough about us - We know it’s been a bumpy ride in the market these last few weeks. While we always try to educate clients to expect market volatility, that doesn’t mean it’s fun when it occurs. Please know that when we build financial plans and investment portfolios we plan for market downturns. However if you’re feeling at all uneasy or your financial or life situation has changed, please reach out to us.
All the best,
Mary & David