By now the passage of the Tax Cut and Jobs Act is history. Advisors and commentators have had months to digest the news and opine on the possible impact this major piece of legislation will have on their clients. Perhaps more importantly, CPA’s have finally finished their 2017 returns, gone away for much deserved R&R, and returned to begin to think strategically about the new law and positioning clients for 2018. Below are 4 actionable items arising from the landmark legislation:
- 40% Discount on Supplemental Executive Retirement Plans (SERP). With near full employment, recruiting and retaining key-employees has become more challenging than ever. Now, with the TCJA, these plans are more affordable for employers than they have been in years. Since SERP plans are funded by employers with non-tax deductible dollars, and the tax rate for C-corporations has been lowered from 35% to 21%, these plans are now also 40% cheaper. This discount applies to Non-Qualified Deferred Compensation plans and Split-Dollar Plans as well.
- Tax free Roth IRA look alike for certain pass through owners. S-Corp and LLC owners earning below $315,000 (married filing jointly) are eligible for a 20% deduction on their income tax return. This tax savings may be allocated to a 7 pay cash value life insurance policy, designed with the minimum non-MEC death benefit, to grow the cash value tax deferred with the potential for tax free income. This is a great way to save the tax cut in a tax advantaged vehicle. Why 7 years? This provision sunsets January 1st, 2026.
- Double your gift! Wealthy clients also have until January 1st, 2026 to give away twice the previous amount, gift and estate tax free. At the end of 2017 the lifetime gifting exemption stood at $5,490,000. In 2018 the exemption is $11,200,000, indexed for inflation. This is a great time to transfer more assets out of the estate and leverage up those assets using tax free life insurance. This gift can be made now, or a wait-and-see, contingent gift design could be implemented.
- The client’s buy-sell agreement is now underfunded. Chances are that if your business owner client has a buy-sell it hasn’t been reviewed in a while. If their business is profitable, then it has likely increased in value and the agreement is underfunded. Now, with the tax cut, the company is likely more valuable still and the agreement is even further underfunded. This is a great time to ask your business owner clients to perform an informal business valuation, provided on a complimentary basis through one of our carrier partners, to determine if additional funding is needed.
Now is the perfect time to talk to your clients, and their tax advisors, about how to best take advantage of these, and other, opportunities. To obtain more details on about these and other strategies, contact your team at Comprehensive Planning.
