2018 Year-end Tax Planning Checklist for Individuals

December 14, 2018

This tax year brings an extraordinary number of challenges and opportunities to year-end tax planning. The Tax Cuts and Jobs Act of 2017 (“TCJA”) revised tax rates, placed new limits on itemized deductions, expanded credits for children and other dependents, and raised the standard deduction. The TCJA also introduced two brand new tax savings provisions: Qualified Opportunity Zones and Section 199A, qualified business income deduction.

What is tax planning really about?  When Cherry Bekaert tax professionals work with you this year, there are two goals –

Help Individuals and families take advantage of traditional tax planning techniques:

  • Defer income & accelerate deductions
  • Maximize retirement plan savings and manage retirement plan distributions
  • Generate losses or match losses with gains
  • Manage the classification of income: capital vs. ordinary; passive vs. active
  • Review basis limits to maximize pass-through business losses
  • Claim tax credits (federal, state, foreign)
  • Confirm year-to-date withholding and estimated tax payments

Help individuals and families take advantage of new planning techniques available because of TCJA:

  • Calculate the potential §199A deduction
  • Assess impact of new limit on business interest expense
  • Apply new limits on itemized deductions
  • Use “bunching” techniques to maximize the new standard deduction and itemized deductions
  • Determine if the Excess Business Loss limitation applies
  • Consider gain deferral by investing in a Qualified Opportunity Zone Fund
  • Evaluate impact of 2019 tax on actions in 2018

Who should engage in year-end tax planning?  If you make estimated tax payments, are an owner of a closely held business, or are in the highest tax brackets (32%, 35%, 37%), you can benefit from tax planning.  In addition, taxpayers with life changes during the year (married, divorced, retired, moved, changed job, new babies, kids graduated from college) may see a different tax result than expected with their 2018 tax returns.  Finally, taxpayers with significant transactions (new investments, received inheritance, significant casualty loss, business success or failure) occurring during 2018 or 2019 can benefit from tax planning.

What about Estates, Gifts, and Trusts?  There are great opportunities to consider year-end gifts to individuals.  The annual exclusion for gifts is $15,000 per donee in 2018, and under TCJA, every individual has a lifetime exclusion amount of $11,180,000. Gifts can be made outright or in trust, or to 529 college savings plans, or new ABLE accounts for the current and future care of disabled individuals.

TCJA revised the methodology for what is often called the “Kiddie Tax.” The tax applied to investment income of dependent children is no longer affected by the tax situation of a child’s parents or siblings. This income is now taxed using the rates applicable to estates and trusts.

Even with the significant increase to the lifetime exclusion, estate planning is still relevant. A good estate plan ensures the transfer of assets in accordance with your wishes; can provide asset protection; and shift future asset appreciation and income to the next generation.

Is it too late to start planning now?  It’s never too late or too early to start tax planning. There are good opportunities for pass-through businesses to claim additional deductions before year end. You can accelerate or defer itemized deductions between 2018 and 2019. Investment losses may be harvested before year end, and state tax credits may be available for purchase. You have 180 days to reinvest gains into Qualified Opportunity Zone Funds to defer tax – even if the gain is realized on December 31.

How to get started? Tax planning begins with taking stock of what has already happened during the year: how much income has been earned; how many itemized deductions have been paid; how much withholding taxes or quarterly estimated taxes have been paid in. Next, assess what income and expenses can or may occur before year end. Third, consider your circumstances in 2019; will you undergo a life change, or a significant transaction, or will next year be similar to this year?

Finally, contact your Cherry Bekaert tax advisor to work with you to generate a snapshot of your 2018 and 2019 taxes and work with you to take best advantage of the changes brought to us by TCJA. Attached is a checklist tool to remind you of information to gather and more opportunities to consider for 2018 tax planning. For additional reading on Top Ways Tax Reform Affects Individuals, Estates and Trusts, click here.