2018 YEAR-END tax planning ?· taxes on income When tax planning at year end, focus on your “marginal”rate.…

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INDIVIDUALStax planning

2018 YEAR-END

guide for

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year in reviewMany people will owe less federal tax in 2018 than in previous years, thanks to thesweeping overhaul of the tax law, known as the Tax Cuts and Jobs Act (TCJA).But some taxpayers could be blindsided by adverse changes and inadequatewithholdings in 2018.

Why the disparity? The TCJA has two sides: It generally lowers tax rates andexpands certain tax breaks, but it also includes provisions that will increase theincome tax base by eliminating or suspending other items. To add to thecomplexity, most of the provisions that affect individuals will be in effect onlytemporarily from 2018 through 2025.

A thorough understanding of tax reform is critical as you prepare for tax filingseason. The tried-and-true timing strategies regarding

will need to be adjusted to account for the TCJA provisions that affect yourpersonal tax situation.

During the November elections, Democrats took control of the U.S. House andRepublicans retained control of the U.S. Senate. So, its not likely that Congresswill enact any major tax legislation over the next two years.

With federal tax laws likely to be holding steady for 2018 and 2019, mostpeople will benefit from deferring taxes this year unless they expect to be in ahigher tax bracket next year. Effective year-end deferral strategies include:

2018 Year-End Tax Planning Guidefor Individuals

when to recognize income

and incur deductible expenses

accelerating deductible expenses making additional charitable donations purchasing or selling investments

year in reviewFor 2018 through 2025, the TCJA also substantially increases the unified gift andestate tax exemption and the generation-skipping transfer (GST) tax exemption.So, its important to review your estate plan in light of these changes if youhavent already.

Over the long run, federal tax matters are less certain. Congress couldcollaborate on legislation with bipartisan support, such as the proposed 10%middle class tax cut and the Tax Reform 2.0 bill that would expand U.S.retirement savings programs. Or perhaps certain issues such as the stateand local tax (SALT) deduction and infrastructure projects will be used asbargaining tools for advancing other legislative projects. Its also unclearwhether Congress will extend (or make permanent) any temporary TCJAprovisions when they expire.

For now, you should plan based on the current tax law. Our tax team continuesto follow tax and regulatory proposals, and well keep you informed aboutchanges affecting your personal tax situation.

Heres a brief summary of tax planning opportunities for you to consider beforeyear end, as well as links to relevant blogs weve posted in 2018 that providemore details on recent developments.

The TCJA provides individuals with more opportunity than theyhave seen in over 30 years. Increased standard deductions,changes to the AMT and lower tax rates with expanded bracketsmeans the TCJA, on whole, will provide relief to most taxpayers.Our KLR tax experts have spent the past year helping our clientsand the professional community understand the intricacies ofthis new Act. This Guide highlights the major changes, providinga foundation for your next planning meeting with your advisor.Enjoy! Laura Yalanis, CPA/MST- Shareholder, KLR Tax Services Group

2018 Year-End Tax Planning Guidefor Individuals

https://www.kahnlitwin.com/services/tax-services/

major TCJA changes

Good News

+ Lowers most tax rates and expands some tax brackets+ Expands the standard deduction+ Increases the unified gift and estate tax exemption and GST tax exemption+ Reduces the number of individuals who are subject to the alternative minimum

tax (AMT)+ Introduces a deduction of up to 20% on qualified business income (QBI) for

individuals who own interests in pass-through businesses+ Offers options to defer capital gains for investing in qualified opportunity zones+ Doubles the child tax credit and expands the households that may qualify+ Permanently allows Section 529 plan distributions to pay for elementary or

secondary school tuition, as well as tax-free rollovers to ABLE accounts+ Suspends the reduction of certain itemized deductions for high-income

individuals+ Increases the income-based limit on the charitable deduction for cash

contributions+ Reduces the threshold for itemized medical expense deductions (2017 and

2018 only)+ Permanently repeals individual mandate penalty under the Affordable Care

Act (starting in 2019)+ Extends discharges for student loan indebtedness due to death or disability+ Provides a new credit for certain employers with qualified family and medical

leave programs (2018 and 2019 only)

Will Tax Reform Legislation Be Good or Bad for You and Your Family?

2018 Year-End Tax Planning Guidefor Individuals

https://www.kahnlitwin.com/blogs/tax-blog/tax-cuts-and-jobs-act-estate-planning-strategieshttps://www.kahnlitwin.com/blogs/tax-blog/tax-reform-faqs-is-the-amt-repealedhttps://www.kahnlitwin.com/blogs/tax-blog/how-are-pass-through-entities-affected-by-the-tax-cuts-and-jobs-acthttps://www.kahnlitwin.com/blogs/tax-blog/opportunity-zones-invest-in-your-community-while-saving-taxhttps://www.kahnlitwin.com/blogs/tax-blog/did-the-tcja-impact-the-child-tax-credithttps://www.kahnlitwin.com/blogs/tax-blog/3-changes-to-section-529-plan-rules-under-the-new-tax-lawhttps://www.kahnlitwin.com/blogs/tax-blog/tax-reform-and-the-medical-expense-deduction

major TCJA changes

Bad News

Narrows some tax brackets, potentially causing affected taxpayers to bepushed into a higher tax bracket sooner

Suspends personal and dependency exemptions Suspends itemized deductions for miscellaneous expenses subject to the 2%

of adjusted gross income floor (such as unreimbursed business expenses,investment expenses and union dues)

Tightens limits on itemized deductions for mortgage interest and home equityinterest

Caps deductions for state and local property and income (or sales) taxes Eliminates deductions for work-related moving expenses and requires

reimbursements from employers for such expenses to be reported as taxableincome except for certain military personnel

Taxes most unearned income of children under age 24 based on the rates fortrusts and estates, not on the parents marginal effective tax rate, under therevised kiddie tax rules

Limits like-kind exchanges to real estate Alters treatment of alimony payments for post-2018 divorce agreements Increases taxes for certain plaintiffs who receive settlements from lawsuits Eliminates deductions for charitable contributions to colleges for athletic event

tickets Limits deductions for professional gambling expenses Limits personal casualty loss deduction to only federally declared disasters Permanently eliminates option to reverse ill-fated Roth IRA conversions

Will Tax Reform Legislation Be Good or Bad for You and Your Family?

2018 Year-End Tax Planning Guidefor Individuals

https://www.kahnlitwin.com/blogs/tax-blog/tax-reform-faqs-are-personal-exemptions-and-standard-deductions-still-allowhttps://www.kahnlitwin.com/blogs/tax-blog/tax-reform-faqs-is-home-mortgage-interest-still-deductiblehttps://www.kahnlitwin.com/blogs/tax-blog/can-i-still-deduct-interest-on-home-equity-loans-under-the-tcjahttps://www.kahnlitwin.com/blogs/tax-blog/kiddie-tax-rules-change-under-the-tcjahttps://www.kahnlitwin.com/blogs/tax-blog/beware-of-upcoming-tcja-changes-to-the-alimony-ruleshttps://www.kahnlitwin.com/blogs/tax-blog/under-the-tcja-plaintiffs-face-a-higher-tax-on-lawsuit-settlementshttps://www.kahnlitwin.com/blogs/tax-blog/last-chance-to-recharacterize-roth-ira-conversions

major TCJA changes

Unless otherwise noted, TCJA provisions that affect individual taxpayers are ineffect from 2018 through 2025. This guide focuses exclusively on federal tax lawchanges. Although many states model their tax laws on the federal tax laws, somestates have decided to decouple from certain TCJA provisions. Some breaks atthe federal level may not necessarily apply at the state level.

Who Should Review Tax Withholdings and Estimated Payments?

Under the TCJA, a year-end check of your federal tax withholdings and estimatedpayments is important, especially for people who:

Are part of a dual-income family Work multiple jobs for all or part of the year Claim the child tax credit or the $500 credits for nonchild dependents

(including children age 17 or older) Itemized deductions on their 2017 tax return Earn high incomes and have complex tax returns Received large tax refunds or had large tax bills for 2017 Have experienced changes in their personal circumstances, such as

getting divorced or starting a new job, in 2018

Will Tax Reform Legislation Be Good or Bad for You and Your Family?

2018 Year-End Tax Planning Guidefor Individuals

taxes on income

When tax planning at year end, focus on your marginal rate. Thats the rateyoull pay on your next dollar of income. Your marginal rate depends on yourincome and your filing status.

Regular income tax rates apply to ordinary income. This includes: wages, self-employment or business income, short-term capital gains, nonqualified dividends,interest and, generally, distributions from tax-deferred retirement accounts.

There are still seven tax brackets under the TCJA, but five of them are slightlylower than under prior law. The thresholds have also generally increased withinthe brackets under the new law.

What Tax Rate Will You Payon Your 2018 Income?

2018 Regular Individual Income Tax Rates

2018 Thresholds for the 37% Rate

Single Head of Household Married Married Filing Separately

$500,001 $500,001 $600,001 $300,001

2018 Year-End Tax Planning Guidefor Individuals

10% 12% 22% 24% 32% 35% 37%

taxes on income

2018 Year-End Tax Planning Guidefor Individuals

Many people who have itemized in the past will decide to take the standarddeduction or alternate between these options from year to year using so-called bunching strategies.

When deciding whats right for you, compare the increased standard deductionamounts

to how much youve spent on items that qualify as itemized deductions for Home mortgage interest State and local tax (SALT) expenses Charitable contributions Medical expenses

Itemized deductions for mortgage interest expense, home equity loan interestand SALT are subject to tighter limits for 2018 through 2025. Plus, itemizeddeductions for miscellaneous expenses subject to the 2% of AGI floor have beenrepealed.

On the plus side, the TCJA lowers the income threshold for deducting medicalexpenses in 2018 from 10% to 7.5% of adjusted gross income (AGI). If you itemize,you can deduct qualified expenses in excess of the threshold. So, if youve gotsignificant medical expenditures for 2018, it could make sense to itemize this year.

2018 Standard Deduction Allowances

Filing Status 2018

Single or married filing separately $12,000

Married filing jointly $24,000

Head of household $18,000

Should You Itemize or Take the Standard Deduction?

For 2018 through 2025, the TCJA allows personal casualty and theftloss deductions only to the extent theyre attributable to a federallydeclared disaster.

https://www.kahnlitwin.com/blogs/tax-blog/the-new-tax-law-and-its-impact-on-itemized-deductionshttps://www.kahnlitwin.com/blogs/tax-blog/tax-reform-faqs-is-home-mortgage-interest-still-deductiblehttps://www.kahnlitwin.com/blogs/tax-blog/tax-reform-and-the-medical-expense-deductionhttps://www.kahnlitwin.com/blogs/tax-blog/changes-under-the-tcja-to-itemize-or-not-to-itemize

taxes on income

The TCJA increases the thresholds at which the AMT kicks in, and it reduces oreliminates some itemized deductions that are normally added back to income incalculating the AMT. Therefore, fewer individuals will owe AMT from 2018 through2025.

If youre subject to the AMT, your tax rate may be lower . . .

26% or 28%. . . but more of your income will be taxed because certain income items aretreated differently, such as:

Incentive stock option exercises Accelerated depreciation adjustments and related gains Tax-exempt interest on certain private-activity municipal bonds

And certain deductions arent allowed, such as:

State and local income tax Property tax

You must pay the AMT if your AMT liability is higher than your regular income tax liability.

2018 Year-End Tax Planning Guidefor Individuals

Will You Owe the Alternative Minimum Tax (AMT)?

https://www.kahnlitwin.com/blogs/tax-blog/tax-reform-faqs-is-the-amt-repealed

timing issues

The timing of when you recognize income, or incur deductible expenses, can have abig impact on your tax bill. Typically, its beneficial, to the extent possible, to deferincome to the next year and accelerate expenses to the current year. This reducesyour current years tax bill.

Under the TCJA, tax rates are expected to remain consistent from 2018 to 2019. So,most people will benefit from deferring taxes until next year. But if you expect to bein a higher tax bracket next year, its generally better to do the opposite: Accelerateincome and defer deductions.

Beware: From 2018 through 2025, the TCJA limits or suspends certain itemizeddeductions and increases the standard deduction. Therefore, more people will optfor the standard deduction or bunch itemizable expenses into alternating tax years.Timing strategies may be limited in years that you take the standard deduction.

What S...