by Carolyn Rothwell on March 22, 2018

Demonstrating the Impact of the Tax Cuts and Jobs Act on Clients' Financial Plans


Demonstrate the long-term impact of the Tax Cuts and Jobs Act on clients' financial plans in TOTAL by comparing sunset vs. no sunset options, and both the short-term effect by comparing financial plans using the current tax law vs. prior tax law.

TOTAL's cash-flow-based approach, Golden Years, completes a detailed tax calculation each year, proving an ideal planning platform for evaluating the effects of the tax law changes.  

EvaulateTaxLawsBlogCover.png


Sunset vs No Sunset

A majority of the tax law changes applying to individuals are not permanent and are scheduled to sunset after 2025, reverting to the law in effect prior to the TCJA. TOTAL includes an option to assume the temporary provisions sunset, or don't sunset and continue for the duration of the projection. The sunset option is available on the File Status / Options tab of Tax Data section of Plan Data for each scenario.  By default, the option is set to sunset.  

Recommended Steps:

  1. Complete the primary planning scenario.
  2. Create two copies the primary planning scenario.
  3. Name the scenarios to reflect the sunset assumption. 
  4. Set the sunset option under Tax Data to match the named sunset assumption. 
  5. Select "Show Scenario Names on Reports" under Report Options to add the name to the top of the report pages.
  6. Create a custom report set with key report pages to streamline the comparison.  
  7. Run the reports using Golden Years and save reports for each scenario, indicating "sunset" or "no sunset" in the filename when saving the PDF.  
  8. Review the results, noting the long-term impact of the tax sunset option. 

Use the What-If for Simple Comparison:

If you are planning with the Online Edition of TOTAL, leverage the powerful What-If system to demonstrate the long-term impact of the tax rule sunset option. 

TOLWhatIf_SunsetOption.png

The sunset option is available under the Tax Data section of the What-If for a simple comparison showing the impact on the client's retirement capital overtime.  


Previous Law vs Tax Cuts and Jobs Act

To illustrate the tax laws in place prior to the Tax Cuts and Jobs Act, run the clients' financial plans using the 2017 tax rules and the 2018 tax rules and save the results as a PDF, following the same path as above. The scenario name can be leveraged to indicate which tax rules are used in the projection by naming and including the scenario name on the report. Creating a custom report set with key report pages can streamline the comparison. Indicate if the report is using the 2017 or 2018 tax rules in the file name.  

An additional data item, "Increase Rate for Federal Tax Tables/Exemptions", can be modified to reflect the impact of the tax rule changes. Under the 2017 rules, provisions with inflation adjustments were tied to the CPI-U. The 2018 rules changed the inflation to tie to the C-CPI-U. Based on historical data from December 2000 to December 2015 provided by the Bureau of Labor Statistics, the average C-CPI-U was 1.89% and the CPI-U was 2.16%.

Recommended Steps - Online Edition:

  1. Complete the primary planning scenario.
  2. Create two copies the primary planning scenario.
  3. Name the scenarios to reflect the tax year assumption. 
  4. Check the box to "Use 2017 Tax Calculations" for the scenario named to indicate the prior tax year assumptions.
  5. Change the "Index Rate for Federal Tax Tables" if desired, lowering the index rate for the 2018 tax year scenario.
  6. Select "Show Scenario Names on Reports" under Report Options to add the name to the top of the report pages.
  7. Create a custom report set with key report pages to streamline the comparison.  
  8. Run the reports using Golden Years and save reports for each scenario, indicating "2017 tax laws" and "2018 tax laws" in the filename when saving the PDF.  
  9. Review the results, noting both the short-term and long-term impact of the tax law changes. 

Recommended Steps - Desktop Edition:

The desktop edition does not include both the 2017 and 2018 tax calculations. In the desktop edition, run the plans you would like to include for comparison before updating to the 2018 tax update. If you have already updated, you can uninstall the current version and install the version with the 2017 tax rules at anytime.  

2017 Tax Calculations  2018 Tax Calculations 
Version 5.0.385  Version 5.0.389
  1. Complete the primary planning scenario.
  2. Create two copies the primary planning scenario.
  3. Name the scenarios to reflect the tax year assumption. 
  4. Change the "Index Rate for Federal Tax Tables" if desired, lowering the index rate for the 2018 tax year scenario.
  5. Select "Show Scenario Names on Reports" under Report Options to add the name to the top of the report pages.
  6. Create a custom report set with key report pages to streamline the comparison.  
  7. Run the reports using Golden Years and save reports using the version with the 2017 tax calculations (5.0.385), indicating "2017 tax laws" in the filename when saving the PDF.  
  8. Update to the new version with the 2018 tax calculations (5.0.389), then run the and save reports, indicating "2018 tax laws" in the filename when saving the PDF.  
  9. Review the results, noting both the short-term and long-term impact of the tax law changes. 

Supporting Information for Steps with Links Above: 

Set the Sunset Option in Planning Data:

To illustrate if the temporary provisions of the Tax Cuts and Jobs Act sunset or continue, run the clients' financial plans using the "sunset" tax assumptions and the "no sunset" tax assumptions

Online Edition

Set the "Income Tax Sunset Provision Takes Effect" sunset option under Taxes section, File Status / Options tab of the scenario plan data. TOLTaxSunsetOption.png

Desktop Edition: 

Set the "Income Tax Sunset Provision Takes Effect" sunset option under Tax Data section, File Status / Options tab of the scenario plan data. 

SunsetOptionTPS.png

Show Scenario Name on Reports:

For added clarity use the "Scenario Name" set under the Assumptions section, Scenario Information tab to indicate which sunset assumption is used in the projection by naming and including the scenario name on the report.  

Online Edition:
Check "Show Scenario Name" under the Reports section, Reports tab of the scenario plan data. 

ShowScenarioNames_TaxUpdate.png

Desktop Edition:

Check "Show Scenario Name" under the Assumptions section, Reports Options tab of the scenario plan data. 

ScenarioNameReportsTPS.png

Reports:

The scenario name will display on each report page under the report title. 

ScenarioNameReportsTaxUpdate.png

Create a Custom Report Set for Comparison:

Creating a custom report set with key report pages can streamline the comparison.  

Key Reports for Comparison

  • Cash Flow Illustration - B7
  • Annual Expense Illustration - B8 
  • Income Tax - Current Year - D3 (for current vs prior law)
  • Tax Summary - D6
  • Taxable Income Analysis - D7
  • Federal Income Tax Worksheet - D8
  • Itemized Deduction and Exemptions
  • Itemized Deduction Phaseout - D11 (if applicable)
  • Alternative Minimum Tax (if applicable)
  • Retirement Capital Estimate - F3
  • Monte Carlo - F4
  • Net Worth - F6

Custom Reports shown in the Online Edition:

CustomReportSet_TaxUpdate.png

Use 2017 Tax Calculations: 

The online edition provides an option to use the 2017 tax calculation.  

Online Edition: 

Check "Use 2017 Tax Calculations" under the Reports section, Reports tab.  Leave this box unchecked to use the 2018 tax calculations.  

2017TaxRulesTOL.png

Increase Rate for Federal Tax Tables: 

The Increase Rate for Federal Tax Tables/Exemptions, can be modified to reflect the impact of the tax rule changes. Under the 2017 rules, inflation adjustments were tied to the CPI-U, and now under the 2018 rules inflation adjustments are tied to the C-CPI-U.  Based on historical data from 2000-2015 provided by the Bureau of Labor Statistics, the average C-CPI-U was 1.89% and the CPI-U was 2.16%.

Online Edition

Set the "Increase Rate for Federal Tax Tables/Exemptions" option under Taxes section, File Status / Options tab of the scenario data. 

TOLIndexRate.png

Desktop Edition: 

Set the "Index Rate for Federal Tax Tables/Exemptions" option under Tax Data section, File Status / Options tab of the scenario data. 

IndexRateTPS.png


If you have any questions, contact our support team by calling 877-421-9815 or sending a support request for assistance. 

Learn more and see TOTAL's in-depth financial planning software in action by joining a weekly online demo. 

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Carolyn Rothwell

Carolyn enjoys spending her time building Money Tree Software's brand and products. Her experience creating and delivering financial plans for a full-service financial planning firm and supporting advisors working to provide the best planning to their clients as a Money Tree support member has provided an excellent understanding of the importance of financial planning.