Tax Planning Tips to Share with Clients before Year-End

Tax Planning Tips to Share with Clients before Year-End

With 2018 coming to an end, advisors are thinking about strategies to minimize clients’ tax liability. With the Tax Cuts and Job Act (TCJA) now in force, there are several new considerations to bear in mind this year.

Take advantage of lower tax rates

Marginal tax rates fell for almost all income levels under TCJA. The exceptions are married couples filing jointly making between $400,000 and $425,950 and single filers making between $200,000 and $424,950 – their rate rose from 33% to 35%. Contributing to 401(k) plans, IRAs and HSAs can help lower taxable income.

Plan ahead if itemizing

The standard deduction is now $12,000 for single filers, $18,000 for heads of household and $24,000 for joint filers. For those who itemize, there have been some changes. Mortgage interest will be deductible up to $750,000 in mortgage debt; mortgages originated on or before 12/15/17 are deductible up to $1 million. The deduction for interest on home equity loans has been eliminated. The deduction for cash charitable contributions has been raised from 50% of adjusted gross income (AGI) to 60%. Medical expenses will be deducted to the extent they exceed 7.5% of AGI, down from 10%. State and local income taxes, as well as sales and property taxes, will be deductible at a maximum of $10,000.

Take advantage of a larger child tax credit

This credit has doubled to $2000 per dependent under 17. It doesn’t phase out until income is greater than $400,000 for joint filers and $200,000 for single filers.

Consider alternative minimum tax liability

Fewer taxpayers will be subject to AMT this year. The AMT exemption has increased to $70,300 for single filers and $109,400 for joint filers.

Look at the tax drag on investments

Scrutinize client portfolios for tax inefficiencies, as taxes can have an unfortunate impact on portfolio performance. Capital gains taxes and taxes on qualified dividends are unchanged. Portfolios with a lot of turnover are typically hit the worst.

Look out for the Medicare surtax on investments

For single filers with income over $200,000 and joint filers with income over $250,000, investment returns are subject to a 3.8% Medicare surtax. The income level on which tax is paid is not adjusted for inflation, so more clients are likely to be subject in the future.

For more information, please read:
6 Tax Planning Tips to Explore Before Year-End | ThinkAdvisor


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