A year has passed - what do we do now?
a) Sit tight.
b) Give, give, give.
c) Analyze how the new Tax Act affects you and your family.
d) None of the above.
e) Procrastinate, NOW!
To be honest, we do not know that any one of these answers is best. Obviously, as your law firm, we suggest “c” - analyze the impact of the new Tax Law changes on your personal family situation.
In this article, we will address some action steps and techniques that we believe are appropriate at this stage of the planning process - your unique set of circumstances will greatly affect how you act (e.g., net worth, age, health, income tax situation, and family dynamics).
First: Year-end gift tax planning
The old rule still holds true - use it or lose it. The current gift tax exclusion is $15,000 for each giver (donor) to each recipient. If you wish to give, we would encourage you to discuss the same with your advisors.
Second: Required Minimum Distribution
Be sure you do not forget to ask your advisor what you must take out of your retirement plan. The penalty is severe.
Third: Standard Deduction
With the almost doubling of the Standard Deduction, you may not need to worry about tax write-offs. Talk to your accountant immediately on how you will be affected by this radical change. Note, the new Act removed the personal exemptions and eliminated the miscellaneous itemized deductions (e.g., accounting fees and investment management fees). Note, the higher standard deduction combined with the removal of the other benefits will result in little ultimate tax savings. There may be tax simplification but, not necessarily tax savings.
Fourth: Charitable Deductions
If you use the standard deduction and do not itemize your deductions (i.e., list out all of your expenses) then, you will not enjoy additional tax savings from giving to charity. Please note, the joy of giving is still available without limitations.
If on the other hand, you still itemize (list out all of your expenses) then, the charitable deduction is better than ever due to the repeal of the limitation on deduction for giving to charity (under the Pease Limitation).
Fifth: Bunch Your Deductions
We recommend you consider giving a great deal of money to charity and bunch your deductions in the year that you itemize. You then can use the Standard Deduction in the alternate years that you do not itemize. Please ask us or your other tax advisors to explain the application of this technique.
Sixth: Give early and give often
If you anticipate that you will have a taxable estate for federal estate tax purposes, then you should consider continuing to maximize the estate tax freeze techniques that we have used all along: GRATs, QPRTs, CRTs, FLPs and Intrafamily Loans, just to name a few of the advanced planning techniques.
Seventh: Sunset of new Tax Act provisions
Many of the good changes will expire at the end of 2025. The sooner you take advantage of the favorable estate, gift, and generation-skipping landscape, the greater the leverage and growth of the money passing outside of your estate.
Eighth: Charitable Rollover and Roth Conversion
If you have an IRA or 401(k), then you may wish to take advantage of these opportunities. The charitable rollover allows you to move assets on a tax-efficient basis from your retirement plan to charity without taking funds into your taxable income first, followed by a limited tax deduction. This is very effective in years you use the Standard Deduction. The second technique is the Roth Conversion. Under this technique, you pay taxes on your retirement plan now and the funds inside the plan continue to grow tax-free. The ultimate distributions from the plan also pass to your heirs' income tax-free.
