Tax extender legislation short on certainty, clouding financial advice

Although the House and Senate have passed legislation that would extend a laundry list of tax breaks — including some that would affect the financial adviser industry in particular — it's not clear when a final bill could emerge. The cloud surrounding a number of measures on Capitol Hill — most prominently health care — also covers tax break extensions. In March, the Senate approved, 62-36, a $33.7 billion tax break extension package. The House passed its version in March. The measures in the bills include a provision that would allow taxpayers to continue to deduct state sales taxes from their federal taxes. Another one would allow tax-free contributions to IRAs. Congressional approval for so-called tax extenders is usually something that is taken for granted, according to Phillips Hinch, assistant director of government relations at the Financial Planning Association. “This year, we have had tax uncertainty that we haven't had in the past,” Mr. Hinch said. “It's not clear what Congress is going to be able to address this year.” The Senate bill barely drew enough support to overcome the 60-vote threshold required to squelch a filibuster. Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee, helped write many of the tax extensions that were included in the legislation. In the end, however, he voted against the bill, citing its high cost. The GOP version “did not include $100 billion of spending that was not paid for under federal-budget rules,” Mr. Grassley said. Mr. Hinch forecasts that a final extenders bill will be approved — it's just not clear how the process will unfold. In the meantime, the questions surrounding tax policy are also affecting investment guidance. “There's a lot of confusion, and it's difficult to give good advice about the future,” Mr. Hinch said. The political fights in Washington are translating into conversations in investment offices. Advisers have to figure out whether their clients believe that Congress will enact tax cuts or reduce spending before they determine the best financial plan for them. “You almost have to ask someone's political views to give them advice,” Mr. Hinch said. “[Advisers] prefer to stick to the numbers, and not go down that path if they don't have to.” One financial professional, however, doubts that the tax extenders would substantially affect what he told clients. “The tax changes are going to impact business owners more so than individuals,” said Brian Appel, principal at The Appel Financial Group. “Our advice doesn't change drastically.”