In Advance of Trump Tax Changes, Prepare for Unknown Scenarios

The incoming Trump administration is likely to bring big changes that will influence how you help your clients prepare their finances. The Tax Cuts and Jobs Act of 2017 was the biggest overhaul of the tax code in 30 years—bringing reduced tax rates, an increase in the standard deduction, and limits to deductions for state and local taxes. Many of its provisions are set to expire in 2025, but it may be extended, revised, or even allowed to expire.

Your tax clients may need to revisit their expectations, reevaluate their investment options and estate planning, adjust their withholdings or quarterly payments, and gain a more thorough understanding of what may or may not be deductible.

Advice for tax professionals—and their clients—revolves around one piece of advice above all others: Prepare for the unknown. It’s not yet possible to know precisely what changes to the tax code are forthcoming, so helping your clients may involve preparing for alternative scenarios.

First, show the possibilities of both potential outcomes of TCJA sunsetting and it being extended, then allow the client to weigh in on their comfort level for each possible scenario. Your recommendation is going to weigh heavily on how they view the possibilities, but being a partner in the process helps everyone feel comfortable with the eventual outcomes.

Prepare for the possibility of changes in:

• Tax rates, with the possibility of the top rate rising to 39.6%
• Estate tax and gift tax exclusion
• IRS services and enforcement
• How tax laws influence a client’s retirement savings and investment options
• Deductibility of state and local taxes (SALT cap)
• Limits to the alternative minimum tax, which the TCJA increased

Strategizing for those changes and keeping on top of new legislation is essential for the tax professional as well as for clients—and that knowledge must be passed on to clients to help them understand what to expect. A little communication will go a long way in alleviating some of your clients’ anxieties.

In an uncertain tax environment, it is helpful to focus on the things we can control. Encourage your clients to write down their goals and set reminders. Break goals down into smaller steps so they feel more achievable. Use the SMART framework—specific, measurable, achievable, relevant, and time-bound—to ensure goals are realistic and trackable.

At least one thing never changes: the importance of their personal financial goals. While the means to achieve those goals may tactically change, the goals stay the same, such as setting aside money for a child’s education, planning for a comfortable retirement, or saving up for a down payment on a house.

Helping your clients develop and achieve short-term (three to 12 months), medium-term (one to five years), and long-term (more than five years) objectives keeps them centered on the horizon rather than the shifting tax winds.

Flexibility is important for tax professionals. The advice and service provided might change to accommodate changes to the tax code, plus changes to the individual client’s personal situation, needs, goals, and desires.

By setting clear goals, budgeting, building an emergency fund, tackling debt, and staying consistent, your clients will be well on their way to achieving lasting financial health. Small changes and effort add up over time, and progress, no matter how incremental, is still progress in the right direction.

The start of a new year brings a new willingness for clients to look beyond the horizon for their finances. If you provide tax planning, they will be looking to you to help them prepare for what changes are coming and how best to minimize tax liabilities. You can be their compass on how to take advantage of every available benefit and achieve their financial goals.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Cary Sinnett is senior manager for personal financial planning at the American Institute of Certified Public Accountants.

Write for Us: Author Guidelines