Addressing Tax Legislation in Your Financial Planning Seminars

Significant changes brought on by the fairly recent Tax Cuts and Jobs Act (TCJA) have created some fantastic opportunities for strategic advisors. Offering a “taxes in retirement” seminar at your local library or community college, allows you to educate the public about the changes and gain some potential clients. However, the legislation is extensive and you don’t want seminar attendees to lose interest by diving into all of the details. Here are five topics that you need to address in your taxes in retirement seminar.

1. Capital Gains

When I ask seminar attendees, “At what rate do capital gains get taxed?” At least half the room answers, “15 percent.” Most people aren't really aware that there is a bracket system for capital gains and qualified dividends. Prior to the TCJA these brackets were linked directly to ordinary income brackets. If you fell in the 10% or 15% ordinary income bracket, you would have 0% capital gains tax. With the recent legislation, these became unlinked from the ordinary income brackets. The old system was preserved for capital gains. So, any capital gains that fall between $0 and $77,200 actually receive the 0% tax treatment. Keep in mind, capital gains get added to ordinary income when calculating the portion of the gain that falls into the capital gain bracket.

2. Increased Standard Deduction

The TCJA significantly increased the standard deduction, impacting not just ordinary income, but also the taxation of Social Security benefits and the impact of the zero percent capital gains bracket. 

3. Itemizing Deductions

This is a big one. Fewer than half of the people who used to itemize are expected to do so now.

4. Charitable Giving

The increased standard deduction has created an interesting new challenge for taxpayers who give to charity. Most clients who give 5% to 10% of their income to charity per year won’t have enough deductions to itemize, or if they do itemize, the value will be reduced. Using either a qualified charitable distribution or a donor-advised fund to lump multiple years of deduction into a single year can be a much better choice.

5. Dependents

The Tax Cuts and Jobs Act included significant revisions to how taxes for people with dependents are calculated. The legislation eliminated personal exemptions and instead created a tax credit for both child dependents and non-child dependents.

Remember, tax advice disclosures are more important than ever before

As advisors, we need to be up front that this is not tax advice. Disclosures protect us from liability. Additionally, building relationships with other professionals who are able to give tax advice is really important. 

What is tax advice?

There are two key elements that define whether or not a discussion about tax implications in retirement decisions is or is not tax advice. The first is whether or not it is delivered by someone who is authorized to practice in front of the IRS. Those include: attorneys, CPAs, and enrolled agents. Since most advisors are not authorized to practice in front of the IRS, your discussion of tax implications could not qualify as tax advice. Second, the subject matter of the discussion is relevant. If the subject matter is general in nature and does not influence a decision as to how the tax return is completed, it could not qualify as tax advice.

It’s important to consider why the tax advice disclosure is important. It’s all about consumer-protection. The last thing you want is for a client to believe they are receiving tax advice, then do something on their self-prepared return that they believe was driven by your guidance. In the event of an audit, had they received actual tax advice and acted upon it in good faith, IRS penalties could be waived. If they hadn’t relied on tax advice, there is no penalty abatement available.

This doesn't absolve us from responsibility to understand the tax consequences of the suggestion. We're going to continue to get questions from clients about the effects of the recent legislation on retirement strategies, and we have a responsibility to address tax issues as we're doing our routine planning work. An advisor's role is really to triage client situations, to identify when there may be an opportunity, and then bring in a professional who can deliver that actual tax advice. Remember:

  • Anytime you're talking about structuring income sources and the interplay of taxation, the interactions can become complicated very quickly.
  • Most advisors should not offer tax advice. Bring in a tax professional to deliver actual tax advice when necessary.
  • Financial software like Tax Clarity®, can help you quickly identify client opportunities and create opportunities for development of center of influence relationships with CPAs and enrolled agents.

Many Americans are still unsure about tax legislation and offering a seminar to address some of their concerns can help you gain new clients and grow your financial planning practice. Your subscription to Tax Clarity includes a free taxes in retirement seminar presentation, and we offer a wide variety of resources to help you prepare for your presentation. Start your 10-day free trial. 

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