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    Your Amazing Tax Planning Questions Answered: Ask the Expert LA

    Tax Planning Questions Los Angeles Financial Planner Answers

    The new GOP Tax Plan is extremely complex.  You could ignore it and get a potentially devastating tax bill when the time comes to file your taxes in 2019.  What I recommend is to be proactive and work with your financial planner and CPA to determine what this bill actually means for you and your family.  Why pay more taxes than you have to?  Answering your big tax planning questions can save you a ton off your tax bill.

    By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

    Here are some of the biggest tax planning questions I’ve been fielding reqularly since this tax plan has been in the news.
    Tax Planning Questions Los Angeles Financial Planner Answers
    Tax Planning Questions Los Angeles Financial Planner has the Answers

    What is happening with my Mortgage Deduction? 

    There are changes coming to the mortgage deduction.  These changes could hurt current and future homeowners in expensive parts of the country.  To read more on this topic, checkout this post – How Rough is the GOP TAX Plan for Los Angeles Homeowners.

    Basically, the mortgage deduction is dropping from $1,000,000 plus $100,000 home equity line of credit (HELOC) to just $750,000 total.  The silver lining here is that if you owned your home as of December 15, 2017 you will be grandfathered in.  This means you can still deduct a mortgage up to $1 million dollars.   HELOC will only be deductible up to $100,000 if it was used to substantially improve your property.  (Yes, the language is vague so expect lots of conversations with the IRS on this one).

    Before you think this really doesn’t apply to me, I want you to picture yourself 10 to 15 years down the road.  During that time, your house has appreciated greatly and you have decided that you would like to take out money for some reason.  Many homes in places like Los Angeles could easily be worth way more than $750,000.  Let’s be honest.  You can’t get more than a condo for that price in much of West Los Angeles as it stands today.  Want to buy a retirement home?  Pay for your kid’s college?  Consolidate Debt?  Remodel?  Pay for long term care for your spouse?

    The higher grandfathered limits do not apply to any cash out refinancing.  Because of this, you may want to reconsider your financial strategy of paying down the mortgage faster versus investing the money elsewhere.  Of course, this depends on your various financial goals and ability to leave your savings alone.  Spending money is so much easier than saving, right?

    Tax Planning Questions #2 – Am I going to get screwed with Property and State Taxes? (SALT Deductions)

    I’m going to go out on a limb and guess that if you are reading this, your current state and local taxes are above $10,000 per year.  If you work and own a home in the $550,000 or more range (in Los Angeles- property taxes vary by location- so this value with differ depending on where you live), you are likely paying close to or more than $10,000 per year in property taxes.  I’ll tell you my property taxes alone are well beyond that threshold – let alone taxes on my income.  This one will hurt.  So yes it is fairly likely that you will get screwed by this part of the GOP Tax Bill.

    Take a look at previous years’ tax returns to try and get an idea of what you’ve paid in property taxes and state income taxes.  The average SALT deduction is over $18,000 in California – but I know many of us are paying way more than that.

    You may also enjoy this video from the KTLA Morning News: How Bad will the Tax Reform Screw Californians? KTLA Morning News Video

    Tax Planning Questions #3 -Was the Obamacare surtax repealed?

    You may have heard someone claim that OBAMACARE has essentially been repealed. It hasn’t nor has the 3.8% surtax.  This annoying tax on net investment income kicks in for married couples with adjusted gross incomes of about $250,000 and $200,000 for singles.  Those are big incomes but not that uncommon here in Los Angeles.

    I’ve previously written about how to minimize the sting of this often-surprising surtax:  Read more here: Obamacare 3.8% Surtax and how to avoid it.

    The bad news is that this surtax is still around but the good news is the provision to force you to use first-in first-out selling in your portfolio did not make it into the final bill.  This means smart investors can continue to make choices that will incur the smallest amount of taxes when selling appreciated investments.

    Tax Planning Questions #4 – I’m self-employed.  Will I benefit from the new pass through rules?

    You may end up benefitting from this part of the tax plan.  This tax break is essentially a 20% deduction of business income for pass through entities.  Think sole proprietor, limited liability corporation (LLC), S Corporation or partnerships.  In the past, this income would flow through to the owner’s individual tax returns, where it was taxed at the owner’s individual rates.  This new 20% deduction only applies to the “profit” of the business owner’s reasonable compensation.

    In case this sounded too good to be true, you should know there are limits and a lot of fine print and about this new break.  First off, the benefit phases out for single filers with taxable income above $157,500.  For married couples, filing jointly, the phaseout begins at $315,000.  This applies specifically to service professionals such as doctors, lawyers, accountants and even a fabulous financial planner, like myself.  Not to make it about me but I work with several business owners in this income range and higher.  This new break will make many of my typical tax planning strategies even more valuable.

    Don’t forget the income limit applies to the household income – not just the business income.  So, for all those double-income households, you will need to look at your joint incomes.  For example, a corporate executive making $300,000 who is married to a business owner making $100,000, would likely see some of the pass through deduction phased out.

    This particular piece of the tax plan is so new that it will take time for financial professionals, like myself, to find all of the best strategies to minimize your tax bill.  This applies to income staring in 2018 so we have some time to look for loopholes.

    Deductions for contributions to Solo 401k plans and Defined Benefit Pension plans may be even more valuable in 2018 for small business owners who are above that $315,000 household income level.  Strategic Tax Planning could help keep more income below the phase out level.   This will you benefit more from the addition 20% pass through tax break.

    Tax Planning Questions #5 – I donated $10,000 to charity in 2017.  If I choose to give the same amount in 2018 will I get a tax benefit for deducting it?

    First off, thanks for your generosity wherever you happened to have donated.  To answer your question, you can still deduct charitable donations.  But since the standard deduction has increased to $12,000 for single filers and $24,000 for married couples – many people will no longer itemize.  If you don’t itemize, you will not receive a benefit for charitable donations.

    That being said, most people who are able to donate $10,000 to charity are likely to have other deductions.  This is especially true here, in California, with our sky-high state taxes and property values.  Because you can deduct up to $10,000 of state and local taxes plus mortgage interest, you will most likely be itemizing your taxes.  That also means a nice tax break for your generosity to charity.

    If you don’t have enough other deductions to itemize, you may want to consider bunching your donations.  Instead of donating $10,000 each year, donate $20,000 every other year.  You could also consider donating during years you make more income or have more deductions.

    Tax Planning Questions  #6 – Unreimbursed Employee Expenses

    If you work as an employee (not self-employed) you will no longer be able to deduct out-of-pocket business expenses.  Think of things like extra training, business travel, licensing and so on.  This is a minor change for most people.  On the other hand, I work with many people in the entertainment industry who this could be devastating for.  Check back next week – I’m working on a post of what the GOP Tax Plan will mean for the Entertainment Industry.

    I could go on all day about all the changes coming with the new GOP tax bill.  Not to mention the millions of permutations of what it will mean for different people.  It will help some people and hurt some people.  Regardless of which it is for you – be proactive and talk with your financial planner and/or tax pro.  This will help you implement new tax planning strategies to make sure you don’t pay a penny more in taxes than you absolutely have to.



    Financial Expert David Rae discussing GOP Tax Plan - Los Angeles tax Planning questions Real Estate
    Financial Expert David Rae discussing GOP Tax Plan – Los Angeles Tax Planning Questions ABC 7 News

    Live for Today, Plan for Tomorrow. Don’t ignore your Tax Planning Questions.

    DAVID RAE, CFP®, AIF® is a top Los Angeles financial planner with DRM Wealth Management, a regular contributor to Advocate MagazineHuffington PostInvestopedia not to mention numerous TV appearances.  He helps smart people across the USA get on track for their financial goals.  For more information visit his website at www.davidraefp.com



    Check out this video with our resident Financial Expert on the ABC 7 News Los Angeles discussing GOP Tax Plan:

    Los Angeles What the GOP TAX Bill Means For You ABC 7 News Video


    Connect With David Rae, Financial Planner LA

    David Rae, CFP® AIF®

    President / Founder DRM Wealth Management LLC

    1(323) 905-4380


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