At the end of every year, it’s important to evaluate your financial situation and perform year-end tax planning and projections. To help you better understand the new tax law and the potential to create greater tax-savings, we’ve put together basic steps for you to seriously consider taking before December 31st.  

Considering some elements of the new law are somewhat complex, we encourage you to reach out to our experienced LGSH professionals to assist you with your tax strategy before the end of the year.

Individual Tax Planning Considerations

1. Timing of Deductions in 2018 

As a result of the new tax law, a common concept known as “bunching” tax deductions is now more important than ever. Considering the new standard deduction for a married filing joint taxpayer is $24,000, and there is now a maximum deduction of $10,000 for state and local taxes, it is quite possible someone without a mortgage (or a very low mortgage) may have some difficulty trying to itemize. By applying a bunching methodology you can accelerate your itemized deductions (i.e. charitable deductions or medical) into one year and this will enable you to move over the threshold and maximize the deduction. 

2. Consideration of a Qualified Charitable Distribution (“QCD”)

When you turn 70 ½ years old, the IRS will require you take distributions from traditional IRA accounts. While the scenario is different for everyone, you may not need these funds for your livelihood and would prefer to give it straight to a charity, rather than taking that income that could create negative tax consequences. By taking advantage of a QCD, you may save on the net investment income tax if your adjusted gross income (AGI) is now lower, possibly avoid your social security from being taxed (depending on other variables,) and avoid any AGI limitations of a charitable deductions (limited to 60% of AGI).

3. Retirement Savings

If you are not an active participant in an employer plan you may make deductible contributions to an IRA in the amount for $5,500 for 2018, plus an additional catch-up contribution of $1,000 if you are over the age of 50. If you are active in a plan, there is an applicable income phase out which applies and would limit the deductible contributions. Maximizing the companies 401(k), 403(b) and 457(b) plans, as well as any applicable matching programs is typically a good strategy.  When you are self-employed, a SIMPLE (SEP) plan may also be considered. 

4. Benefits of Children 

The Child Tax Credit has now been increased to $2,000 for a qualifying child (up from 2017) and the AGI thresholds have been increased substantially, with phase-out beginning at $400,000 for MFJ. Adoption credits and educational credits are also still quite beneficial when they are applicable to taxpayers.  Since a taxpayer typically operates on the cash basis, prepaying for tuition and other educational qualifying costs can qualify for the year in which it was paid.

5. Reducing Gift Tax

The annual gift tax exclusion for 2018 is $15,000 to each donee. A taxpayer can make gifts to as many recipients as they wish and exclude this amount from their estate however an individual may not carry over any unused annual gift exclusion. Married donors can double the amount of this exclusion to each donee ($30,000) and combine their exclusion. Qualifying medical payments and tuition payments made on behalf of a donee do not count against this limit. Even though the new estate exclusion is in excess of $11 million, it is still important to take advantage of gift tax and estate planning since no one knows what the future holds.

6. Investment Strategy

Ongoing discussions with your investment advisors and your tax representative are very important. At times your taxpayer strategy might be to place funds in municipal bonds to generate tax free income or other tax-friendly investments. In other years, it’s possible that creating more taxable investment income with applicable investments, and selling gains in your portfolio, may be a wiser strategy.  Remember, investment income is subject to the investment income 3.8% surtax at certain levels so be mindful of this when looking at your tax brackets and goals.

7. Consider Out-of-State Residence

With the new $10,000 cap on state and local tax deductions, it is possible that moving to a no tax state (or a low tax state) may make sense. This depends on many variables and you would need to consider various alternatives. Alternative Minimum Tax (“AMT”) may have been a factor in prior years and it’s very possible this state tax deduction may have been limited to some extent. Some due diligence would be highly recommended, but it still may make sense and many taxpayers are actually using this strategy.

8. 529 Plans

The College Savings Plans have always been a great tool to save for a college education on a tax deferred basis. A taxpayer can now save on the growth and the money can be used for elementary and secondary school expenses (K-12 ). A taxpayer still has the ability to accelerate a gift for up to five years to fund this type of plan.

9. Interest Deductibility

The new tax act has caused some confusion for many taxpayers regarding line of credit interest or home equity debt. Interest paid on home equity lines is deductible if the funds were used to buy or substantially improve the home that secures the loan. For 2018 and onward, there is only one $750,000/$375,000 mortgage limitation. 

10. Accelerate Income in 2018 

There are circumstances where you as a taxpayer may become aware of a large income event that will occur in the future or maybe in 2019.  When the event is known, you will have some control of your income stream and it may make sense to bring some of that income into 2018, take advantage of lower tax brackets, and potentially reduce your tax liability.  It’s also possible you will have capital loss “carryforwards” or a net operating loss, causing the acceleration of income not to have an impact in the current year, depending on certain other variables. 

To be sure you are able to take full advantage of the benefits offered by the new tax law and maximize your tax-saving opportunities, please call our team of expert tax professionals at (818) 783-0570 or email us at