INTRODUCTION

INTRODUCTION

TAX VOLATILITY CAN UNCOVER

FINANCIAL PLANNING OPPORTUNITIES

BRIAN VNAK Vice President, Advisory Services

For more than three decades, the American tax system remained relatively stable. Every few years, tax bills would pass that would primarily impact individuals in the top tax bracket and have little impact on most Americans. However, when the Tax Cuts and Jobs Act (TCJA) passed in 2017, we entered a period of tax volatility that could continue into the foreseeable future—that isn’t necessarily a bad thing, as long as you have a plan.

Since 2017, Americans—and their tax preparers and financial planners—have felt the impact of several rounds of tax-law changes, including:

2017

Tax Cuts and Jobs Act

The new law enacted sweeping reforms and impacted all taxpayers: individuals and families, businesses, trusts, non-profits and even state departments of revenue. The potential for an automatic reversal of many individual tax law changes in 2025, coupled with possible political shifts every two years, set the stage for continued tax volatility for years to come.

2018

2019

2020

State-Level Tax Reform

Another major impact of the TCJA is its effect on state income tax laws. Since most states incorporate portions of the Internal Revenue Code (IRC) into their own tax laws, the TCJA also had implications at the state level. However, the implications vary from state to state, which left taxpayers with a lot of questions. In response to the TCJA, states began proposing or enacting legislation, adopting regulations and issuing guidance on the impact of various provisions of the TCJA.

SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is the largest retirement-focused legislation in decades, impacting individual investors and the retirement plans they may have access to through employers. The SECURE Act also contains several smaller tax changes that are not retirement related. The bill is so far-reaching that everyone should review their financial plan to identify potential opportunities or landmines.

Coronavirus-Related Stimulus

With the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress reached a landmark agreement that provided more than $2 trillion in economic stimulus to individuals and businesses, including an individual tax rebate in the form of a cash payment. Additionally, the IRS postponed the 2020 federal income tax filing and payments deadline from April 15, 2020 to July 15, 2020 and many states followed suit. In addition, the CARES Act includes provisions that may not be as well known, so it’s important to familiarize yourself with all the nuances of this legislation.

Another election is always just around the corner, whether it’s for state legislators or a presidential election year—and with that comes a certain amount of uncertainty. Tax law changes are inevitable, as elected officials come and go, so it’s best to be prepared. Start asking yourself or your advisor questions like:

What is the cumulative impact of these tax law changes on my finances? How can I leverage new tax laws to minimize the share of my retirement assets that federal and state governments own?

What opportunities do the new tax laws present for potential savings now or in the long term?

Volatility Means Opportunity

Major tax reform is not simple, and issues are bound to pop up. But where there is volatility, there is also opportunity. Just like how stock market volatility can present opportunities to buy and sell investments, tax volatility could create opportunities to restructure your financial plan to improve your current tax situation. All the turnover is bound to be a bit confusing, even for the experts, so be sure that you’re working with your financial advisor and tax specialists to stay up to date with new opportunities.