Year-End Tax Planning Considerations


The Tax Cut and Jobs Act (TCJA) passed late last year has kept us busy throughout 2018. With 12/31 quickly approaching, we wanted to summarize year-end planning strategies to consider. Keep in mind these strategies will also apply in 2019; so this year-end summary can also give you a head start when planning for next year.

Property Taxes: The new tax law limits the State and Local tax deduction to $10,000. For Wisconsin residents, consider paying at least $2,500 in property taxes this year to maximize Wisconsin’s tax credit. If you reside outside of Wisconsin, consult with your tax preparer to learn specifics within your state.

Required Minimum Distributions (RMDs): If you are over age 70½ and have a retirement account, you must take your RMD by 12/31. If you’re charitably inclined, see the Charitable Giving section below. If you have an Inherited IRA, you must also take your RMD by year-end.

Charitable Planning:

  • Qualified Charitable Distributions (QCDs): After age 70½, you’re able to give up to $100,000 from your IRA to charity tax-free AND this gift counts toward your RMD for the year. Anyone over the age of 70½ with an IRA who wants to give money to charity should make the gift from their IRA.
  • Investment Gifts: For those under age 70½ who wish to give to charity, donating appreciated investments is a tax efficient way to give. The market value of the investment may be deductible, plus you can avoid paying capital gains taxes on the appreciated investment.
  • Bunching Charitable Gifts: The new tax law virtually doubled the standard deduction, so only 10% of all taxpayers will itemize their deductions. For some taxpayers, it may make sense to bunch several years of charitable gifts into one year to exceed the standard deduction, allowing you to itemize. In future years, you’ll simply use the standard deduction. Take a look at your Schedule A from 2017 to see if your total deductions were around the standard deduction ($24,000 for those under 65 and $26,000 for those 65+). If you are close to that amount, give us a call (or your accountant) and we’ll help you determine if bunching charitable gifts makes sense. NOTE: Remember that in 2018 your state and local tax deduction will be limited to $10,000 and all the miscellaneous deductions are no longer allowed.
  • Charitable Account: A charitable Donor Advised Fund (DAF) can be used to bunch multiple years of giving in one year. Contributions to the DAF are deductible. You then give those dollars to charity over multiple years.

Roth IRA Conversions: If this year is a low tax year for you, relative to future years, converting some or all of your IRA to a Roth IRA may make sense.

IRA/Roth IRA Contributions: You have until April 15th, 2019 to make IRA and/or Roth IRA Contributions for 2018. If you do make a contribution to an IRA or Roth IRA account, be sure to let your tax preparer know so they can account for it on your tax return.

529 Contributions: You have until April 15th, 2019 to make a contribution to a 529 College Savings Plan for 2018. For Wisconsin residents, contributing at least $3,200 per family member to the Edvest 529 plan will maximize the Wisconsin State Income tax deduction. You can carryforward any contributions greater than $3,200 (and up to the annual gift exclusion) for state income tax deduction. Keep in mind the new tax law allows you to use your 529 plans to pay for K-12 educational costs, up to $10,000. This is a great way to save for a child or grandchild’s future education.

Gifting to Family: The annual gift exclusion in 2018 is $15,000. If you want to shift assets to family members (or anyone else for that matter), you’re able to give $15,000 per year per person. One consideration is to give appreciated stocks to family members who are in a lower tax bracket.

Business Owners:  There are a host of tax planning strategies available to business owners. If you own a business and want to discuss this further, please give us a call.

Wishing You All The Best!
Your Team at Shakespeare Wealth Management