Unless you’ve been living under a rock somewhere then you know Congress just passed a new tax reform bill. Our taxes are going to be adjusted — for many of us — for the better. Most of us are going to pay less in taxes than in the past. Now, there are a few that are not. However, for the most part, most of us will be paying less in taxes.
There’s a lot of deductions we’re combing through right now. I’m not going to get into the details of the actual tax bill, but I’m going to give you a quick overview. As many of you know, I’m a contributor for Kiplinger, and I received a query from them. They said, “Hey Justin! What are you telling your business clients right now at this year-end?”
That’s a great question because I’ve been on the phone with business clients for the last two weeks nonstop just helping them out and working on their year-end tax planning to help minimize their taxes for 2017. Maybe you’re in the same boat, so I wanted to give you some insight.
Here we are in 2017. That’s important because based on the law as we read it today, most of us are going to pay fewer taxes next year than we will this year. Now again, I’m not digging into the details of that today, but that’s the general consensus. And trust me, that’s pretty much the case because I’ve read the bill in its entirety. Yeah, I know I have no life. I sit at home, and I read tax law. What can I say?
The following is the advice I’m giving to our business clients. If you’re a business owner and you’re reading this, you may want to talk to your Certified Public Accountant and your CERTIFIED FINANCIAL PLANNER™ about this particular concept.
It’s a given that every year, as long as I’ve been in this business, CPAs will tell their clients to go ahead and buy that expensive piece of equipment or those pricey supplies in this tax year. This time, that’s changed a little with this tax bill. Here’s the way I look at it through my financially simple mind.
If you’re going to make more money this year than next, then we’re telling our clients to go ahead and expense out as much as possible. Why? Because next year, theoretically, you should be in a lower tax bracket. Now, what happens if you make less money in 2017 than you are going to make in 2018? Why would I say that? Well, we have a client who just received a huge contract, and his income is going to double in 2018. In that case, we’re telling our client to shift some expenses into 2018. Even though he would receive a tax reduction in 2017 based on the numbers, we would still prefer to drop our 2018 numbers down further.
Now a lot of our professionals, like our entrepreneurial doctors, have stabilized income, which I call annuitized income. It’s not really moving up-and-down; it’s fairly predictable and stagnant. We’re telling those individuals to bring expenses into 2017. Why would we do that? Based on the rules in this new tax bill, most individuals should pay fewer taxes in 2018 than they do in 2017. Since their tax bracket is higher in 2017 than it should be in 2018, we want to reduce our clients’ present-day tax liabilities as much as possible.
So how do you reduce those numbers?
Well, I was meeting with a client yesterday morning, and he needs to buy tens of thousands of dollars worth of tires for his heavy equipment. So we told him to go ahead and buy the tires. Get the invoice, and pay for them, but let the store keep them in the warehouse. Additionally, we have a pool contractor we work with, and he’s ordering a semi-truck load of salt for the saltwater system pools. We told him the same thing. We suggested that he go ahead and stock-pile it now so that he can reduce his present year’s taxes.
In our business, I’ve already paid out some of our continuing education expenses that I know we will incur for next year. We’ve already planned and paid for trips that we know we’ll need to take. My partner and I went ahead and worked on some bonus structures so that we’re taking on more expenses in 2017 because we are in a higher tax bracket this year than we should be next year.
We have one particular dentist that we found $90,000 worth of equipment that he could go ahead and expense out this year. In doing so, he dropped his tax bill by $30,000 according to his Certified Public Accountant.
Guys, listen. Tax planning is important! It really matters! And what we’re doing for clients this year is a little different than other years because we have this curveball, in the form of a tax bill, being thrown at us. However, we’re going to slam it out of the park because it matters this year – A LOT! Why? Because most of us will pay fewer taxes next year than will be required of us this year based on the data coming from the bill.
So if you don’t have a CERTIFIED FINANCIAL PLANNER™ walking you through this or if you don’t have an accountant that thinks like this, contact us, and we will help.