End of year tax planning

2019 tax planning checklist

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As the new year kicks off and tax season approaches take note of the following changes and opportunities. Then, contact a financial advisor at Waddell & Reed to discuss those that apply to your situation.


Tax reform and your tax return

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, makes tax planning especially important this year. For example, you may have fallen into a different tax bracket and are affected by a new marginal income tax rate. This could have an effect on your 2018 filing, but it also offers opportunities for the current year to defer income if needed. Also, since the standard deduction has nearly doubled, it would be a good idea to reexamine whether you should itemize or use the standard deduction for your 2018 tax return. In doing so, take into account that many previously allowable itemized deductions have been reduced or eliminated, including interest on home equity loans (not used to improve your home), investment expenses and tax prep fees.

Charitable giving

With the higher standard deduction, fewer people may use annual charitable giving to reduce their tax burden. If donating to charity is something you’re passionate about, plan your charitable giving this year with an eye towards maximizing the benefit to your chosen organizations. Depending on your situation, these strategies may help you achieve some tax efficiencies.    

  • Donor advised funds (DAF) are like a charitable investment account, for the sole purpose of supporting charities you care about. Contribute cash, securities, or other personal assets to a DAF and, provided it is written in the sponsor agreement, control the distribution of the funds to your favorite charities at a later time. You can take an immediate tax deduction, just as if donating directly to a charity.
  • Charitable blocking allows you to use a DAF to contribute several years’ worth of donations in one year in order to capture a charitable deduction that could contribute to itemized deductions larger than the standard deduction. Then, you can use the standard deduction in subsequent years.
  • Make a qualified charitable distribution from an individual retirement account and count it towards your required minimum distribution (RMD). Only allowed for people over age 70 ½, the donation goes directly from the custodian to the charity. Because it is a qualified charitable distribution it satisfies the RMD requirement, benefits a charity, and it doesn’t have to be included in your income. There are certain restrictions that you should be aware of, as not all charities are qualified and there are monetary donation limits. Be sure to talk to your tax advisor.

Limit increase for employer-sponsored retirement plans

 Consider taking advantage of the 2019 contribution limit increases for the possibility of maximizing your contributions this year. Check with your plan sponsor to see when you can make a change. The limit increases include the following:

  • The limit for employees who participate in 401(k), 403(b), most 457 plans and the Thrift Savings Plan has increased from $18,500 to $19,000.
  • The limit on annual contributions to an IRA has increased from $5,500 to $6,000. Note: this is the first increase since 2013.

Estate planning

The annual gift exclusion has increased to $15,000 per donor to each recipient. This, combined with the substantial increase of the unified credit amount – a credit you can use to gift during your lifetime or transfer after your death – makes it a great time to create or revise your estate planning strategy, especially plans that include gifting techniques.

As always, please contact a financial advisor to discuss these tax planning opportunities. In addition to speaking with an advisor, you should consult your tax professional and/or attorney.

Need more insight? Let us be your guide.

Our national network of experienced financial advisors can help you create a personalized plan to help you identify financial goals and get you where you want to go in life.

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Associated Tags: Taxes, Tax reform, Estate Planning

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This information is provided for educational purposes only and may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to assist in understanding the issues discussed. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Waddell & Reed does not provide tax or legal advice. Please consult with the appropriate professional regarding your personal situation prior to making any financial related decisions.