By: Bill Jackson J.D., CLU®, Director of Advanced Markets at Partners Advantage Insurance Services, LLC Tax Cut and Jobs Act (TCJA); short for “An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” What a mouthful! I think we will stick with TCJA. One of the major areas of complexity in this new law, which is effective for 2018, is its application to pass through entities. As you may be aware, the top corporate tax rate has been reduced from 35% to 21%. However, with sole proprietors, partnerships, “S” corporations, and pass through LLC’s there is a 20% deduction on adjusted gross income. The complexity arises in how and when the 20% deduction is applied. If the client has an “S” Corporation, only the distributive share is eligible for the 20% deduction. W-2 wages paid to principals are not eligible nor are guaranteed payments to the shareholders. To add to the complexity of this act, congress chose to limit the benefits of the 20% deduction for “service” organizations. If the business derives its income from personal service, the deduction is phased out at certain levels of adjusted gross income; so doctors, accountants, attorneys, financial professionals, real estate agents, and consultants must deal with the phase-out of the 20% deduction. For service organizations where the taxpayer is filing singly, the deduction is available up to $157,500 of adjusted gross income. There is a pro rata reduction up to $207,000 of Adjusted Gross Income (AGI) and over that amount the deduction is completely gone. If the taxpayer is married filing jointly, the threshold is $315,000 and the deduction is gone at $415,000 of AGI. If filing jointly, the spouse’s income is also included in determining the phase-out. Obviously affluent service business owners need help. Keeping income below the $315,000 threshold could provide a $63,000 deduction and save $17,640 in taxes for a pass through service business owner with and AGI of $315,000. How can a service business owner reduce taxable income below the threshold? Most have fewer than five employees or may work alone. The ability to reduce income by buying a substantial depreciable asset is often limited. The only alternatives for reducing income are a qualified retirement plan or deductible interest payments on a loan based split dollar plan. In the qualified retirement plan space, two options stand out. The most flexible option for a business that may have fluctuating profits is the SOLO K plan, which can allow deductions of up to $61,000 for owners over age 50. For businesses with stable profits, the defined benefit plan is a top choice. Deductions for this type of plan can easily exceed $170,000 each year for an owner participant. Several carriers like Lafayette Life, National Life Group, and American National offer plan design, plan administration, and funding media specifically designed for these plans. Options include annuities and life insurance. With the loan based split dollar or dual loan strategy, the business takes a commercial loan and loans the proceeds to the owner to pay premiums on a personal life insurance policy. The policy is collateral for the loan and the owner pays interest at the applicable federal rate. The owner receives a higher level of protection for family and higher retirement income potential than with a traditionally funded plans. The business interest deduction often amounts to between $30,000 and $60,000. These strategies can mean the difference between being able to benefit from the 20% deduction and not seeing any tax relief. To learn more about how these strategies work, and how they can benefit your clients, contact the Partners Advantage Advanced Markets Department at 888-251-5525, Ext. 361. Did you miss the webinar titled, “Opportunities Generated by the Tax Cut and Jobs Act (TCJA)?” You can access the replay here >> Get Webinar On-Demand. For financial professional use only. Not for public distribution. Not to be used for consumer solicitation purposes. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion and experiences. Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein. Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney. 449066
On December 22, 2017, President Trump signed the Tax Cut and Jobs Act (TCJA) into law. The TCJA has made significant changes in personal and business federal tax rules. Learn how the new tax law can impact the use of Life Insurance and Annuity products for legacy creation and retirement income planning strategies. You will learn:
How the new tax act can affect households in different economic situations
Estate planning changes and how financial professionals should respond
How businesses can take advantage of the new tax law with concepts
Complete the form to access this On-Demand webinar to learn how to thrive under the new tax law with families, estates, and businesses.
This webinar is intended for educational purposes only. For financial professional use only. Not to be used for consumer solicitation purposes. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion and experiences. Partners Advantage does not warrant or guarantee the accuracy or completeness of the information contained herein. Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney.
By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at Partners Advantage Insurance Services, LLC
Currently college costs are substantial enough to have the potential to compromise the parent’s retirement plans or produce burdensome debt for the college student. The costs can range from $100,000 for some local state supported universities to $280,000 for many prestigious private schools. Most parents with pre college age students range in age from 40 to 60 years old. They are concerned with how much college will cost. They are unsure of how much government aid they will receive. Some have set money aside in a 529 plan, State tax free college bonds, or a prepaid tuition plan. Many have done little planning. Determining college costs is easier than in the past. There a number on online calculators which are even college specific and that can pin down the cost for the student’s intended school. These calculators also have the ability to consider the effect of inflation on costs for students with a number of years before they reach college age. Families that need help with college planning typically fall into two categories. Families that have five or ten years to plan and families whose children are on the doorstep of entering college. Each of these situations requires a different financial approach. For younger families there are few assets that have the flexibility and tax advantages of cash value life insurance. All of the alternatives mentioned before have limitations on when and for what purpose the money can be used. The cash value of life insurance can be used at any time for any purpose even if the student does not decide to go to a university. This is a typical example and summary of college costs and timing for a younger family. State: CA, Husband age 53,Spouse age 49, Son age 12, Daughter age 10.The family’s desire is to send both to a four year college in CA (public) They would like to have the cash to do this and a protective element in case one or both spouses die early. Projected yearly costs:
Wife
Husband
Son
Daughter
Pomona
Long Beach
Yearly Total
49
53
12
10
50
54
13
11
51
55
14
12
52
56
15
13
53
57
16
14
54
58
17
15
55
59
18
16
31725
31725
56
60
19
17
32677
32677
57
61
20
18
33658
28840
62498
58
62
21
19
34667
29705
64372
59
63
22
20
30596
30596
60
64
23
21
31514
31514
61
65
24
22
62
66
25
23
http://www.finaid.org/calculators/scripts/costprojector.cgi, http://money.cnn.com/tools/collegecost/collegecost.html This sample illustration shows how a well-designed Indexed Universal Life policy can in just six years develop enough tax free income to complete both students higher education. Most importantly the solution is self-completing, meaning that even if the insured breadwinner dies early the tax free funds are available to complete the plan.
Information provided by Allianz Life Insurance Company of North America. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. The just in time family has very different objectives. They have already accumulated assets. The husband and wife are in their 50’s their daughter is 17. Their primary concern is securing government support for daughter’s education. They have $750,000 in various banks and assets. Their daughter would like to attend UCLA. They will need some of this cash to be liquid to cover costs over and above grants and scholarships. With their current asset positioning the family will not qualify for financial aid. When they complete the FAFSA form to apply for support they will need to declare the $750,000. Assets in life insurance are not included for FAFSA so the family could qualify for aid if the assets were repositioned into a life insurance policy. The following example illustrates the potential for growth, liquidity, and tax efficiency of this solution.
Information provided by North American Company for Life and Health. This is a Modified Endowment Contract, loans and distributions are subject to tax and penalties if the client is under age 59 1/2. Permanent life insurance is not only a great cash accumulation vehicle for college planning. It is also a great way to reposition assets to provide a competitive return, tax deferred growth, and exclusion FAFSA consideration. These factors taken together can help consumers college planning and retirement outcomes. Call Bill Jackson J.D. CLU, Senior Advanced Markets Consultant if you have a case you would like to discuss or would like added information on: 888-251-5525, ext. 361. For financial professional use only. Not for use with consumers. This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success. 193888
As we head toward the end of 2016 and prepare for 2017, we wonder how the estate planning environment might change. There is even some pressure to abolish the Federal Estate Tax. Regardless of where we stand on this issue, one thing remains and that is the federal deficit. The issues are complex, however, the chances of adopting any measure that significantly cuts tax revenue is slim. So, let's assume the current $10,900,000 portable unified gift and estate tax exemption will stand unchanged.1 How do we effectively help clients with estate planning needs? If we are to be the catalyst sharing ideas and bringing them to fruition, the process is still paramount. As we approach the end of 2016 it is more important than ever. In my work in this space I see cases sometimes fail because the correct process is ignored. You might get lucky and stumble upon an already developed case and make a product sale. This is neither a sure or consistent entry into the market. Start with Fact Finding The successful process begins with in depth fact finding. There are many great estate planning fact finders from carriers and other sources. They all have one thing in common. They guide you in asking the disturbing questions about estate reduction. They uncover client goals and dreams, for example do they want their children treated fairly or equally. Most importantly, they contribute to developing rapport with the client. Then, when you request all those private financial documents from your client or ask for a meeting with one of their other advisors, the client's answer is yes. I see more cases fail for lack of this step than for any other reason. Learn how detailed fact finding, teamwork, and new alternatives available to insurance professionals can make a significant difference to affluent families during the largest wealth transfer period in history.
1Source: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax For financial professional use only. Not for use with consumers. Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of un-recovered cost basis will be subject to ordinary income tax. Tax laws are subject to change. Partners Advantage Insurance Services and their representatives do not give tax or legal advice. Accordingly, any tax information provided is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. Encourage your clients to consult their tax advisor or attorney. Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the ex that they exceed the policy owner's cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions.
The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Partners Advantage does not provide legal or tax advice. Partners Advantage cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Partners Advantage does not assume any obligation to inform you of any subsequent changes in the tax law or other factors that could affect the information contained herein. Partners Advantage makes no warranties with regard to such information or results obtained by its use. Partners Advantage disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation. 75534
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