Are You Paying Too Much In Income Taxes?
The 2017 Tax Act dramatically lowered taxes by increasing the lifetime estate tax exclusion to $11.4 Million. The Tax Act also lowered income taxes in many respects. However, for wealthy individuals, there are many changes that increased income taxes. To make sure you aren’t paying too much Read More.
Reducing Income Taxes Under the 2017 Tax Act
- Itemized Deductions. The 2017 Tax Act sharply curtailed these offsets against taxable income. Two key provisions are a $10,000 limit on deducting state and local taxes (SALT) on your federal return, and an increase in the standard deduction that may make itemizing charitable gifts less advantageous. However, there are excellent strategies to deal with these limits.
- State Income Taxes. The new limits on deducting state and local taxes are punishing in state with high income taxes. In some state (NY, NJ, CA) these rates hit 10%. In states with no income tax, this is a non-issue. But changing one’s residency isn’t always possible or desirable. Fortunately, there are creative planning strategies to minimize the negative impact on living in a state with an income tax.
- Lower Rates For Entities. The 2017 Tax Act reduced the corporate tax rate to 21%. It also extended this favorable treatment to many – but not all – “pass-through entities”: partnerships, S-corporations and LLCs. If you are an owner of any of these entities, you may be able to take advantage of the 21% corporate rate.
- Grantor Trusts. Before the 2017 Tax Act, a popular planning technique was the use of Grantor Trusts. Here, the creator of a trust pays all the trust’s taxes, which allows the trust to grow tax-free. Now, with increased income taxes, Grantor Trusts may not be as attractive. If you have a Grantor Trust, be sure to evaluate the impact of the 2017 Tax Act on your tax liability.
- Conclusion. Taxes are one of the great confiscators of wealth. The 2017 Tax Act includes a number of provisions that may make your income taxes more onerous. There are solutions, but you need to act now.
IWM Advisors is an independent wealth advisor that works with its clients to find creative ways to limit taxes. To learn more about our approach, please visit www.iwmnyc.com or call Peter Culver at 917.697.4156.