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Why 2024 Tax Planning Is So Murky
It ’ s been a while since so much uncertainty shrouded year-end tax planning .
By Eric L . Reiner
WITH THE PROVISIONS OF THE 2017 Tax Cuts and Jobs Act slated to sunset at the end of next year , tax planning today looks suspiciously similar to what it was at the end of 2010 , when the Bush tax cuts neared their scheduled expiry . “ What I learned back then , and I ’ m still applying it now , is being very careful to leave flexibility in year-end tax decisions ,” says Jim Holtzman , CEO of Legend Financial Advisors in Pittsburgh .
And with good reason . After all , much of the Bush-era legislation ultimately stayed intact beyond 2010 .
Adding to this year ’ s planning haziness is the presidential election . Its outcome will undoubtedly affect the tax code ’ s future , which means the tax move you make today could paint your client into a corner if the law lands in a place that ’ s different from what you assumed . “ Whatever strategy you implemented could hurt the client ,” Holtzman warns .
So when you ’ re discussing strategy with your clients , you should show them the projections under both existing rules and the regime that could be in place if the 2017 law sunsets , advises Sharif Muhammad , a partner at JMG CPAs LLC in Somerville , N . J . “ It helps the client see how the landscape changes if tax rules change ,” he says .
Andrew Christakos takes the same approach . “ We can ’ t predict the future , so we have to work with the data that we have right now ,” he tells clients . “ Then we work with the client to decide what is best for them ,” says Christakos , a CPA and wealth advisor at Christakos Financial in Cranford , N . J .
If the current law expires and tax rates revert to their pre-2017 act levels , many clients would pay a heftier rate . Some clients are thus taking advantage of today ’ s potentially lower rates by speeding up distributions from traditional retirement accounts , including inherited IRAs , and using the funds to pursue capital gains in taxable accounts , according to advisors .
Siren Song
The specter of higher tax rates has made Roth conversions more attractive , both this year and next year , according to Christopher Fundora , director of retirement planning at Traphagen CPAs & Wealth Advisors in Oradell , N . J . The rate a client pays on a conversion now could be less than the rate they ’ d pay if the funds stay in a traditional retirement account and are withdrawn later . In addition , thanks to final Internal Revenue Service regulations issued in July , “ a conversion can have significant estate planning benefits because children inheriting a Roth IRA can allow it to grow tax-free for 10 years ,” Fundora says .
But be careful . The income from a Roth conversion can also trigger state or local taxes . You might want to look for property tax exemptions , which are often at the city / county level . Or perhaps you want your client to wait if they ’ re already planning to
NOVEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 45