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Advisors Work Overtime to Manage Investors’ Tax Reform Expectations

Advisors have been responding to emails, writing blogs, updating their Twitter accounts and even running client tax returns with the new rates to keep antsy investors informed about the most sweeping tax overhaul in more than a quarter century.

Good news can be easy to communicate. In order to help investors understand exactly what their taxes will look like next year, Bernard Kiely, president of Kiely Capital Management, Morristown, N.J., has applied the tax plans’ new rates to clients’ 2016 income tax returns. “So far, I’ve run about half of my clients’ taxes and every one of them will see lower taxes in 2017,” Kiely told Financial Advisor magazine.

One of Kiely’s clients who earns approximately $500,000 will save $12,000 next year, said Kiely, who had just prepared the client’s 2016 income tax statement with the newly-approved rates and standardized deduction for a client meeting. “At his income level, he hardly got benefits from individual deductions any way so he’s better off with the $24,000 new standard household deduction,” Kiely said. “Next year, he’ll also see $1,000 more in monthly gross income,” the CPA added.

“The higher you are on the income scale, the better off you are with this plan. You can’t give a tax break to someone who doesn’t pay taxes,” added Kiely, who said a number of clients had emailed him with concerns about the new tax plan.

The sprawling plan, which could land on President Trump’s desk by Friday, would revise nearly every part of the tax system by lowering income tax rates at all levels, restructuring deductions and providing lower income-tax bills to the vast majority of households, though the wealthy who pay more in taxes will see more relief. The sprawling plan cuts the corporate tax rate dramatically, provide new breaks for businesses and even removes the Affordable Care Act mandate.

Kiely said he has a few clients who may be incented to pick up and leave New York or New Jersey, states that both have higher than average income and property tax rates. “I have clients who have been considering moving already and this may be what pushes them over the top.”

Helping clients’ decide whether or not they need the tax savings enough to put it before their lifestyle and other considerations is also his job, Kiely said. “I have one wealthy client who already retired to Pennsylvania for cheaper income taxes. He has a vacation home in South Carolina and called me wanting to know which state would be cheaper for him now. When I ran the numbers, one state would save him $7,000 overall but I wouldn’t tell him which. He has so much money, it would be like you or I moving to save $15. I said ‘You don’t need the savings. You should live where you want to live,’” Kiely said.

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