End of year tax planning

2018 year-end planning checklist


As the end of the year approaches, take note of the following opportunities and deadlines. 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 year-end planning especially important. If you’ve fallen into a different tax bracket and are affected by a new marginal income tax rate, you may want to consider deferring income before the end of the year. 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, taking 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 much 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 with an eye towards maximizing the benefit to your chosen organizations while achieving tax efficiencies using these strategies.

  • 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 but 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 a 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.

Employer-sponsored retirement plans

Don’t let the end of the year sneak up on you without:

  1. Taking your required minimum distribution, if you’re over age 70 ½, before the December cut-off date (usually Dec. 31) to avoid a strict and hefty penalty.
  2. Considering the $500 contribution limit increase for 2019 and the possibility of maximizing your contributions for the coming year. Check with your plan sponsor to see when you can make a change. Note: this is the first increase since 2013.

Estate planning

The annual gift exclusion has been 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 now 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 year-end opportunities and deadlines. In addition to speaking with an advisor, you should consult your tax professional and/or attorney.

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Associated Tags: Taxes, Tax reform, Estate Planning

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This information is provided for informational and 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. Waddell & Reed does not provide tax advice. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided.