INDIVIDUALStax planning

2018 YEAR-END

guide for

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, it’s 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, it’s important to review your estate plan in light of these changes if youhaven’t 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. It’s 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 we’ll keep you informed aboutchanges affecting your personal tax situation.

Here’s a brief summary of tax planning opportunities for you to consider beforeyear end, as well as links to relevant blogs we’ve 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

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

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 parent’s 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

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. That’s the rateyou’ll 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 what’s right for you, compare the increased standard deductionamounts

to how much you’ve 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 you’ve 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 they’re attributable to a federallydeclared disaster.

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 you’re 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 aren’t 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)?

timing issues

The timing of when you recognize income, or incur deductible expenses, can have abig impact on your tax bill. Typically, it’s beneficial, to the extent possible, to deferincome to the next year and accelerate expenses to the current year. This reducesyour current year’s 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, it’s 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 Should You Accelerate (or Defer) This Year?

2017 Year-End Tax Planning Guidefor Individuals

Common Timing Strategies

Income Items• Bonuses• Self-employment income• Retirement plan distributions• U.S. Treasury bill income

Expenses• Charitable contributions• State and local income taxes• Property taxes• Mortgage interest

2018 Year-End Tax Planning Guidefor Individuals

There’s good news for people who, in prior years, were subject to theincome-based reduction of certain itemized deductions: The TCJAsuspends the reduction for 2018 through 2025.

Timing strategies can also help you avoid the AMT in 2018— or they could trigger itif you’re not careful.

tax breaks for homeowners

Historically, the biggest itemized deductions for many taxpayers have been forhome-related expenses. Although fewer people will itemize deductions under theTCJA, some homeowners will continue to receive tax breaks for homeownership.But some tax benefits will be limited for 2018 through 2025.

Mortgage Interest and Property Tax Deductions

Beware: Starting in 2018, the deduction for interest on home equity debt isavailable only if the loan was used for home improvements. As under prior law,home equity interest isn’t deductible for AMT purposes unless it was used forhome improvements.

$10,000 is the limit on SALT deductions. This limitation applies to property andincome (or sales) taxes combined.

These limits do not apply to deductions for rental properties.

Are You Turning Big Expensesinto Big Tax Savings?

2018 Year-End Tax Planning Guidefor Individuals

$1 million was generally the limit on home acquisitionindebtedness under prior law. (For married people who fileseparately, the limit was $500,000.) Acquisition debtincurred or refinanced before December 16, 2017, is stillsubject to these limits, with certain exceptions. In addition,you could generally deduct interest expense on up to$100,000 of home equity debt under prior law.

$750,000 is generally the limit on home acquisitionindebtedness for 2018 through 2025. (For married peoplewho file separately, the limit is $375,000.) These limits applyto home acquisition debt incurred after December 15, 2017.

tax breaks for homeowners

Home Office Deduction

Business owners who use a home office exclusively for business can deduct actualexpenses allocable to the space, including some that otherwise wouldn’t bedeductible, such as utilities and depreciation.

Are You Turning Big Expensesinto Big Tax Savings?

2018 Year-End Tax Planning Guidefor Individuals

Or you can use a simplified calculation of $5 persquare foot up to a $1,500 maximum.

The home office deduction has been suspended(except for the self-employed) under the TCJA, alongwith other miscellaneous itemized deductions subjectto the 2% of AGI floor.

If you move for job-related reasons in 2018 through 2025, thededuction for moving expenses has been suspended, and youmust include any employer-reimbursed moving expenses inincome. There’s an exception for active-duty military, however.

Moving Expense Deduction

tax breaks for homeowners

Gain Exclusion on Home Sales

If you sold your principal residence in 2018, you may be able to exclude from yourtaxable income all (or part) of the gain.

Various tests must be met to qualify for this break, and gain that’s attributable to aperiod of “nonqualified” use of the home may be subject to capital gains tax. Anygain that isn’t covered by the exclusion might be subject to the net investmentincome tax (NIIT) in addition to capital gains tax.

If you’re planning to sell a second home, consider making it your principalresidence for a period long enough to qualify for the exclusion. Or, if it’s a rentalproperty and the sale is likely to generate a significant gain, consider a like-kindexchange.

2018 Year-End Tax Planning Guidefor Individuals

Maximum Gain Exclusion

The TCJA didn't change the rules for excluding gains on homesales or making like-kind exchanges of real estate. However,like-kind exchanges of personal property, such as machinery,artwork and patents, have been eliminated for 2018 through2025 under the new law.

Single Head of Household Married Married Filing Separately

$250,000 $250,000 $500,000 $250,000

tax breaks for medical expenses

Health care costs are on the rise, causing many employers to cut back onhealthcare benefits. Today, many taxpayers are paying more out-of-pocket formedical expenses than in previous years, often because premiums haveincreased and/or their plans have higher deductibles and co-payments.Fortunately, various tax breaks can help take the bite out of these increases.

Medical Expense Deductions for 2018

Medical expenses are deductible if you itemize, but only to the extent that theyexceed the applicable AGI threshold.

Are You Using Tax Breaks to Combat Rising Health Care Costs?

2018 Year-End Tax Planning Guidefor Individuals

of AGI is the threshold for deducting medical expensesfor 2017 and 2018 only, under the TCJA.7.5%

Starting in 2019, the AGI threshold for deducting medical expenses increases to the pre-TCJA threshold of 10%. Consider maximizing elective medical spending in 2018, because the threshold will be higher next year.

tax breaks for medical expenses

Health Savings Accounts (HSAs) and Health Care Flexible Spending Accounts(FSAs)

Exceeding the AGI threshold for the medical expense deduction can be challengingfor many taxpayers. Fortunately, HSAs and FSAs allow you to make pretaxcontributions and are used for tax-free funding of qualified medical expenses.

2018 Year-End Tax Planning Guidefor Individuals

Self Employed?

Instead of making contributions to employer-provided HSAs and FSAs, self-employed taxpayers who pay their own medical and dental insurance premiumscan generally deduct those costs “above the line.” This can lower AGI, making iteasier for the self-employed to exceed the AGI threshold for the medicalexpense deduction for 2017.

Uninsured? Under the Affordable Care Act, for 2018, taxpayers without healthinsurance face penalties equal to the greater of 2.5% of their income, or $695 peradult + $347.50 per child. The maximum penalty is $2,085 per family.

Additional rules andlimits apply to theseaccounts.

$3,450

$6,900

$1,000

$2,650

2018 Contribution Limits

*

*

charitable deductions

If you’re charitably inclined and you itemize deductions, charitable giving can be oneof the most powerful tools in your tax planning toolbox.

You have complete control over when and how much you give.

The TCJA made two enhancements to the rules for making charitable donationsfrom 2018 through 2025. First, it eliminated AGI-based phaseouts for itemizeddeductions. Second, it increased the limit on your annual deduction for qualifiedcharitable donations of cash from 50% of AGI to 60% of AGI. Lower limits may applyto certain donations. Beware of these limits and donation deadlines as you consideryear-end charitable giving for 2018.

If you decide to take the standard deduction (rather than itemize deductions), youcould lose out on this tax break in 2018.

Is Charitable Giving an Important Part of Your Tax Planning?

2018 Year-End Tax Planning Guidefor Individuals

and other donation-related breaks

of a donation to a qualified charity isgenerally deductible if you itemizedeductions.

100%

Substantiation Requirements

For your donations to be deductible, you must properlysubstantiate them. Requirements depend on the type andamount of donation.

Three Donation-Related Breaks to Consider for 2018

1. Donate Appreciated Securities Rather Than Cash

Giving away publicly traded appreciated stock you’ve held more than one yearoffers a double tax benefit:

But don’t donate stock that has lost value. You’ll enjoy a bigger tax benefit byselling the stock, recognizing the loss and donating the proceeds.

charitable deductions

2. Make Qualified Charitable Contributions from IRAs

A rollover can help fulfill your required minimum distribution, and it’s especiallybeneficial if the 60% of AGI limit would reduce your charitable deduction.

2018 Year-End Tax Planning Guidefor Individuals

and other donation-related breaks

$100,000 is the maximumamount you can transferfrom your IRAs directly toqualified charities tax-free ifyou’re age 70½ or older.

$100,000

You can deduct the full fair market value of the stock.

You avoid the capital gains tax you’d owe if you sold the stock.

You can “bunch” donations with a Donor Advised Fund.

1.

2.

3.

charitable deductions

When you make a qualified charitable distribution from your IRA, the income isexcludable from AGI. The donation is not deductible on Schedule A. This can yieldbetter tax results for some taxpayers.

3. “Bunching”donations with a Donor Advised Fund

With a donor advised fund (DAF), you can bunch donations in one tax year and thenthe DAF distributes the funds to your favorite charities over multiple years. DAFsallow you to receive a tax benefit in tax years that you bunch donations, whilemaintaining a consistent cash flow stream for your charities.

2018 Year-End Tax Planning Guidefor Individuals

and other donation-related breaks

Under the TCJA, the tax rates for long-term capital gains and qualified dividendsare no longer tied to the tax rates for ordinary income.

Short-term capital gains (gains on investments held for 12 months or less),nonqualified dividends and taxable interest income are taxed at ordinary-incometax rates as high as 37%. You also may owe the 3.8% NIIT.

tax planning for investments

Tax planning for investments is a top priority for many individuals. Of course, thereare many nontax factors you should consider before making investment decisions.But, timing gains and losses on sales can help minimize taxes for 2018.

15% is generally the long-term capital gains tax rate, which also applies to qualifieddividends. But the rate is 20% at higher income levels.

Are Taxes Taking Too Big a Bite Out of Your Returns?

2018 Year-End Tax Planning Guidefor Individuals

2018 Thresholds for 20% Long-Term Capital Gains and Dividends Tax Rate

Single Head of Household Married Married Filing Separately

$425,800 $452,400 $479,000 $239,500

Taxes on Capital Gains

2018 Top Rate, Including NIIT

Short-term gain 40.8%

Most long-term gain 23.8%

Long-term gain on collectibles, such as artwork and antiques

31.8%

Long-term gain attributable to certain recapture of prior depreciation on real property

28.8%

tax planning for investments

Passive Activities

Do you materially participate in the businesses you’re invested in? If not, beware ofthe passive activity rules. In general, losses from passive activities can only betaken against passive activity income. Unused passive losses can be carriedforward until you earn other passive income or you sell an investment.

Income from these types of activities involves some different considerations andplanning strategies.

Qualified Small Business Stock (QSBS)

The QSBS was acquired on or after September 28, 2010.

The QSBS was held for more than five years.

To qualify as QSBS, the stock generally must have been issued by a C corporationthat doesn’t own assets worth more than $50 million and that’s in an active trade orbusiness. Additional rules apply.

The TCJA permanently lowers the corporate federal income tax rate to a flat 21%.So, if you sell QSBS shares that are eligible for the gain exclusion, the 21%corporate rate will be the only federal income tax that the corporation or you willowe.

2018 Year-End Tax Planning Guidefor Individuals

1.

2.

of the gain from the sale or exchange of QSBS is tax free, as long as:100%

If your net capital losses exceed net capital gains, you’re limited in how much lossyou can deduct per year against ordinary income. The limits on deducting capitallosses against ordinary income for 2018 are:

Loss carryovers can be a valuable tax saving tool. But they disappear once ataxpayer dies.

for mosttaxpayers

for married taxpayers who file separately$3,000 $1,500

tax planning for investments

Qualified vs. Nonqualified Dividends

Dividends are an important part of your return on investment. But not all dividendsare created equal for tax purposes. There are two types of ordinary dividends:

Nonqualified dividends are taxed at ordinary income rates.

Qualified dividends are taxed at the more favorable long-term capital gains rates.

Stock-Based Executive Compensation

Many high-net-worth taxpayers earn stock-based executive compensation,including:

• Incentive stock options (ISOs)• Nonqualified stock options (NQSOs)• Restricted stock

Special rules apply to stock-based compensation. Year-end planning can help youdecide whether to exercise options and/or sell stock.

Under the TCJA, qualified employees of eligible private companies may elect todefer paying taxes on these awards for up to 5 years.

2018 Year-End Tax Planning Guidefor Individuals

education planning

Parents and grandparents worry about rising college costs. The College Boardestimates that the annual cost for living on campus and attending a four-yearuniversity for 2017-2018 ranged from:

Fortunately, you can contribute money to various college savings programs.Contributions aren’t deductible for federal tax purposes, but earnings accumulatetax-free if you follow the rules.

Are You Taking Full Advantage of Tax-Advantaged Funding Options?

2018 Year-End Tax Planning Guidefor Individuals

$20,790 for an in-state public university

$46,990 for a private university

College Savings Programs

529 PlansCoverdell Education Savings

Accounts

Annual Contribution

Limits?

No, but you might owe gift tax on contributions over the $14,000 annual

exclusion.

Subject to annual income limits, and only $2,000 can be contributed per

child per year.

Tax on Withdrawals?

No, if the money is used to pay for qualified

college-related expenses.

No, if the money is used to pay for qualified education expenses,

including primary and secondary school expenses.

education planning

2018 Year-End Tax Planning Guidefor Individuals

Education-Related Credits and Deductions

The tax code also offers several tax breaks for higher education spending for youand your immediate family members. These breaks may be reduced oreliminated based on your modified adjusted gross income (MAGI).

The TCJA changes the rules for Sec. 529 plans to allow• Up to $10,000 of tax-free annual withdrawals for qualifying elementary

and high school tuition per student• Transfers to ABLE accounts

Beware: Large contributions of more than $75,000 (or $150,000 if you’re marriedand make a joint contribution with your spouse) will reduce your unified federalgift and estate tax exemption.

education planning

2018 Year-End Tax Planning Guidefor Individuals

Deductions for Higher Education Costs

The deduction for qualified higher education tuition and fees expiredat the end of 2017, unless Congress decides to retroactively extend itfor 2018. In addition, under the TCJA, employees can no longer claimunreimbursed work-related education expenses as a miscellaneousitemized deduction for 2018 through 2025.

2018 Tax Credits and Phaseouts for Higher Education Costs

American Opportunity Lifetime Learning

Annual Credit

100% of the first $2,000 of education expenses; 25% of

expenses between $2,000 and $4,000; maximum credit $2,500

per student

20% of the first $10,000 of qualified education expenses; maximum credit $2,000 per tax

return

MAGI Phaseout Range for Joint

Filers$160,000-$180,000 $114,000-$134,000

MAGI Phaseout Range for Other

Filers$80,000-$90,000 $57,000-$67,000

Other Notable Rules

Only for the first 4 years of higher education costs

For higher education costs during or beyond

the first 4 years

retirement planning

Traditional Retirement AccountsEmployees may be eligible to make pretax contributions to various employer-sponsored retirement plans. Plus, these contributions can reduce your AGI andMAGI, which are the triggers for certain taxes and can cause the benefit of certaintax breaks to be reduced or eliminated. But there are limits to your annualcontributions.

2018 Year-End Tax Planning Guidefor Individuals

Have You Maximized Your Contributions and Minimized Your taxes?

Employees without retirement benefits and the self-employed: Consider atraditional IRA.

In addition to contribution limits, the deduction for traditional IRA contributions isphased out if your MAGI exceeds certain levels. Traditional retirement accountsgrow tax-deferred until withdrawn. So making the maximum contributionallowed by law is typically a good idea.

2018 Limits for 401(k), 403(b) and 457 Plans

Elective deferrals for people under age 50 at year end $18,500

Elective deferrals for people age 50 or older at year end $24,500

Defined contribution plan limit $55,000

2018 Contribution Limits for Traditional IRAs

People under age 50 at year end $5,500

People age 50 or over at year end $6,500

retirement planning

2018 Year-End Tax Planning Guidefor Individuals

Roth Accounts

Contribute after-tax dollars to a Roth account now…

…and take tax-free withdrawals later as long as your withdrawals are “qualified.”

In 2018, the contribution limits are the same for traditional and Roth IRAs. (The limitsapply on a combined basis, however.) Unfortunately, income-based limits mayprevent higher-income taxpayers from contributing. If you’re above the phaseoutlimit, consider a “back door” Roth IRA.

Beware: Under the TCJA, you can no longer reverse regular-to-Roth IRA conversions made in 2018 and beyond.

Retirement Plan Withdrawals

You could owe penalties for withdrawing too soon or too little, depending on yourage. Withdrawals are taxed at ordinary-income tax — not long-term capital gains —rates. Plus, they could push you into a higher tax bracket and/or increase yourMAGI enough to trigger the NIIT on some or all of your investment income.(Retirement plan withdrawals themselves aren’t subject to the NIIT.)

planning across generations

“Shifting” income to children or grandchildren in a lower income-tax bracket savesyour family taxes as a whole. Specifically, consider transferring appreciated orincome-producing assets to them before year end, so that tax on any gains (if anasset is sold) or income generated is subject to their rate — which might be as lowas 0%.

Kiddie Tax

Income shifting across generations works only for gifts to adults. “Kiddie tax” rulesgenerally apply to:

The TCJA revises the kiddie tax rules. Instead of taxing a child's unearned incomebeyond a certain limit ($2,100 for 2018) at the parent's marginal tax rate, it's nowtaxed at the federal income tax rates for trusts and estates, which can be as highas

To the extent that a child's unearned income will be taxed at a higher rate thantheir parents' income will be, your family may not benefit from shifting unearnedincome to children. Instead, consider transferring assets that don't generateincome or using planning vehicles that offer tax-free earnings and withdrawals,such as Sec. 529 plans and Roth IRAs.

Can You Save Taxes by Transferring Assets to Family Members in 2018?

2018 Year-End Tax Planning Guidefor Individuals

18 24Children under age Full-time students

under age

+

37% for unearned income over $12,500

planning across generations

Can You Save Taxes by Transferring Assets to Family Members in 2018?

2018 Year-End Tax Planning Guidefor Individuals

Annual Gift Tax Exclusion

$15,000 is the gift tax annual exclusion per recipient and donor for 2018 and 2019.Leverage your exclusions even further with gifts to a Section 529 educationsavings plan or Coverdell Education Savings Account.

Lifetime Exemption

Starting in 2018, the TCJA substantially increased the unified federal gift andestate tax exemption and the generation-skipping transfer (GST) tax exemption. Italso maintains the step-up basis rules, as well as the portability provision formarried people.

$11.18 million is the 2018 lifetime exemption.

$22.36 million is the 2018 lifetime exemption for married couples if theyimplement proper planning.

40% is the flat tax rate that applies to taxable estates that exceed theexemption amount.

The increased exemption amounts will be adjusted annually for inflation through2025. But the benefits will be fleeting: In 2026, the exemption is scheduled to fallto an inflation-adjusted $5 million ($10 million for couples), unless Congressextends it.

Even if your estate is below current exemption amounts, there are still importantestate planning moves that you could make today to help your family in thefuture.

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December 31 is an important tax deadline that you might not be aware of: Witha few exceptions, it’s the date by which most of your tax planning strategiesmust be implemented to reduce your 2018 tax bill.

Contact our tax team to set up a meeting to brainstorm financial planningstrategies to help you succeed in the future — and minimize your taxobligations for 2018.