This year is coming to an end, and there’s one thing we can all agree on: 2018 was a doozy for tax practitioners. Between tackling a challenging busy season, reading up on the Wayfair ruling and navigating the constant stream of tax reform guidance, there’s been a lot to keep up with.
But while you were making heads or tails of the changes to tax, your clients had their own list of challenges keeping them up at night.
Whether they got married or divorced, retired or sent a child off to college, their financial realities shifted and not just because of tax reform.
That’s where you come in. You know there are moments in life when the choices made have significant and sometimes complicated tax implications, and you know how to navigate these changes.
The challenge? Getting your clients to see how these events affect their taxes.
To help, the AICPA released four new resources in the Tax Practitioner’s Marketing Toolkit that address the tax implications of major life milestones. Review each of these topics with your clients and be on the lookout for ways you can provide a holistic approach to their financial lives.
Marriage or divorce
When people think of marriage, they may have an image of two young lovebirds starting their life together. In reality, marriage is a lot more complicated than a fairy tale, and each marriage has its own set of tax considerations.
Marriages between two previously married adults or couples marrying later in life face many tax challenges. This is especially true for blended families that may need expert guidance on the nuances of certain tax credits. Couples with investments, property, back child support payments or back taxes, and couples who stand to claim a significant inheritance also need to consider the unique tax implications of marriage.
No matter the cause, divorce is a sensitive issue that raises many tax concerns. For instance, tax reform changed how alimony payments are treated. Those who choose to sell a home both spouses own could be subject to capital gains tax.
Walk your clients through these issues and more with these marriage tax tips.
Who doesn’t love picking out tiny baby booties and onesies? Having a baby is an exciting time, but it also comes with a whole host of tax implications. First and foremost, a new child affects the filing status of the person or couple welcoming their bundle of joy.
For example, a married individual used to filing separately may find that he or she has to file jointly to claim certain credits and deductions. Many parents can claim tax credits to offset the amount of tax they owe after having a child, but each credit comes with specific qualification requirements. Child care can get expensive, but there are ways to reduce the overall cost with tax-friendly planning.
Take some time to celebrate your clients’ new addition. Then use these tax tips to get the family started in the right direction.
A good education is a stepping-stone for a bright future, but it’s also a huge financial undertaking. Smart tax planning can give any client a leg up.
Parents can help fund their child’s education through Sec. 529 plans or prepaid tuition plans, and some income used for education expenses can qualify for an exclusion. Other education expenses could be eligible for a credit or deduction, like the student loan interest deduction.
Some students have special considerations that muddle their tax situation. Those going to school on scholarships should pay close attention to what the money is being used for, or they may find it’s considered taxable income.
The rules around education are intricate, and many have been altered by tax reform legislation. Sit down with your clients and go over these education tax tips.
Retirement doesn’t just happen. It takes years of careful planning, and a big part of this is related to tax. As your clients consider budgeting for retirement, it’s important they remember that even though the work stops, taxes don’t. Whether your clients choose a Roth or Traditional IRA or augment their savings with stocks and other traditional investments, they need to be aware of how these will affect their taxes now and later.
In retirement, it’s vital to stretch savings as far as they will go while staying aware of how unforeseen circumstances like casualty losses or increasing health care costs can negatively affect finances. Those selling their home or gifting to loved ones will need to pay close attention to the tax consequences of these moves.
These retirement tax tips clarify the ins and outs of some of the tax issues your retiring clients may face and help any client planning for retirement to get moving.
Despite anything else that may have happened in your clients’ lives this year, one significant — and recurring — financial event didn’t change: their annual tax return. No matter what else they’ve done in 2018, this is going to be on their to do list come January. Take some time out to evaluate their tax return and recent life changes to help them strategize for the future.