With less than a month left in 2018, time’s running out for you to finish your wealth management and tax planning to-dos. Many tax opportunities have an annual expiration date of Dec. 31, and this year presents unique possibilities. Here are 10 items you can check off your lists before the ball drops on New Year’s Eve.
Day 1 of the Ten Days of Tax-Mas
Freely give to help others live.
You should make annual exclusion gifts of up to $15,000 for individuals and $30,000 for married couples, per chosen loved one (per married couple).
Make gifts into trusts for children and grandchildren.
Contribute to an Internal Revenue Code Section 529 plan, which grows free of income tax.
You can make unlimited gifts directly to educational institutions and medical facilities.
Day 2 of the 10 Days of Tax-mas
Reap what you’ve sowed (and take your losses).
You should consider harvesting losses to offset capital gains realized in their securities portfolios. And check if you have loss carry forwards from prior years that could off-set additional gains you may have in your portfolio. This could minimize the tax impact of rebalancing your portfolio into the New Year.
Day 3 of the 10 Days of Tax-mas
Your health is your wealth.
You should take advantage of this year’s lower threshold for Medical Expenses if possible. For tax year 2018, the 2017 Tax Cut and Jobs Act reduced the floor (from 10 percent to 7.5 percent of adjusted gross income) that must be exceeded to take a deduction for Medical Expenses on one’s tax return. This is the last year to take advantage of this lower floor; so, if possible, you should try to accelerate any medical transactions and purchases into the 2018 year.
Day 4 of the 10 Days of Tax-Mas
Use a tax rate in its infancy.
Review your children’s portfolio income for application of the new Kiddie Tax. Prior to 2017, the children’s interest and dividends (unearned income) above $2,100 were taxed at your top marginal tax rate. As a result of the Tax Act, this income will be taxed at the rates that are applicable to trusts. Trust rates are also at the top bracket, but the top rate starts sooner in the earnings curve.
When will your child have to file a separate tax return?
- If their earned income, such as wages, exceeds $12,000; or
- If their unearned income (interest, dividends, capital gains) exceed $1,050; or
- If the child has both earned and unearned income, the child must file if the total exceeds the larger of: (i) $1,050 or (ii) the earned income plus $350.
Day 5 of the 10 Days of Tax-Mas
You should think about giving.
With a higher standard deduction it may make sense to bunch your charitable deductions into the same year. The deduction for cash donations to public charities has increased to 60 percent of the taxpayer’s adjusted gross income.
Charitable donations should be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single). Otherwise, your client’s charitable gifts won’t enjoy a benefit.
If over aged 70½, you should make a qualified charitable donation of your required minimum distribution from your individual retirement account; the income will be excluded from the return and taxable income.
Make gifts to charities and family foundations with appreciated assets:
- Consider gifting low-basis stock (instead of selling the stock to raise cash for gifting that could lead to gains).
2. Determine liquidity needs in the foundation to meet the requirement to pay 5 percent of the value of a foundation’s net investment assets.
3. Fund a charitable remainder trust with concentrated positions in appreciated securities to diversify without adverse tax consequences associated with selling appreciated securities.
Day 6 of Tax-mas
Rocket fuel for your investment vehicles.
Establish and fund qualified plan contributions. Be sure to max out your contributions to your 401k plan. And if you are over 50 be sure to max your catch up provisions. For 2018 you can contribute $18,500 and if you are over 50 you can contribute $24,500
Consider making a gift of up to $5,500 to either a traditional or Roth individual retirement account for your children or grandchildren who aren’t funding their own IRAs but have enough earned income to report. This will be a gift that will give to them for a long time after this holiday season is over.
Day 7 of Tax-mas
Take a break to consider break-ups.
While we always support and encourage harmony and reconciliation, if there must be a decision to legally separate or complete a divorce, you may want to do so before year end. Otherwise, moving forward, the payer of alimony will no longer get a deduction on their tax return, and the recipient will no longer have to include the alimony as taxable income.
Day 8 of Tax-mas
Don’t wait to compensate
If you are the owner of an S corporation you must pay yourself a reasonable compensation (what someone in a similar job would be paid). Therefore, make sure you pay yourself a salary before year end.
Day 9 of Tax-mas
Be bold and review your withholdings.
The Tax Act lowered the tax rates and changed the tax bracket income ranges. Therefore, now’s the time for you to do a “check-up” to see if the current tax withholding will be sufficient for next year’s income. You do not want to be caught with a surprise because you didn’t withhold enough during the year. If you find that you under withheld you can use the beginning of the year to save extra to be able to make your tax payment by April 15th.
Day 10 of Tax-mas
Get in the groove to make a move.
You should make distributions of income from trust accounts and estate accounts to lower your income tax liability. Estates and trusts are taxed at the highest income tax rate (and at a lower threshold at which the 3.8 percent Medicare surtax applies). Therefore, it may make sense for you to distribute income to the beneficiaries to be taxed at the beneficiary’s lower income tax rate.
If you have any questions about your tax situation or want to discuss how we might be able to help you with your planning into to 2019. Please call us at 336-310-4233.