10 Best Income Tax Planning Ideas for 2018 After Tax Reform

Transcription

1 10 Best Incme Tax Planning Ideas fr 2018 After Tax Refrm Belfint Briefing December 5, 2018 Presented by: Jrdn Rsen, CPA, MST, AEP - Directr Valerie C. Middlebrks, CPA - Principal Cpyright 2018 Belfint, Lyns & Shuman, P.A.

2 Tax Cuts and Jbs Act Quick Overview Lwered tax brackets tp bracket in 2018 = 37% Eliminated persnal and dependent exemptins Dubled Standard deductin Limits state and lcal tax deductins t $10,000 Retains 0%, 15%, 20% capital gains tax rates Retains 3.8% net investment incme tax Retains, but expands exemptins frm Alternative Minimum Tax Dubles child credit and permits credit fr ther family members Eliminates miscellaneus itemized deductins subject t 2% f AGI flr Cpyright 2018 Belfint, Lyns & Shuman, P.A. 2

3 Tax Cuts and Jbs Act Quick Overview Cntinued Limits mrtgage/heloc interest deductin Changes hw certain lsses can be claimed Prvides fr a 20% deductin n certain business incme Change t Kiddie tax calculatin Individual prvisins f tax act effective Cpyright 2018 Belfint, Lyns & Shuman, P.A. 3

4 The Gal Keep Adjusted Grss Incme Lw Impacts deductible medical expenses therwise subject t 7 ½ percent f AGI flr Impacts taxability f scial security benefits Impacts future Medicare Part B and D premiums Impacts available amunt f special rental real estate passive lss deductin Impacts new 20% qualified business incme deductin Cpyright 2018 Belfint, Lyns & Shuman, P.A. 4

5 #1 Qualified Business Incme Deductin 20% f incme frm S crpratins, partnerships, self-emplyment incme, and real estate trade/businesses Certain wage/asset limits may apply if taxable incme is greater than $315,000 (MFJ) r $157,500 fr thers Limited fr prfessinal service type business incme Effectively reduces tp tax rate frm 37% t 29.6% Planning Cpyright 2018 Belfint, Lyns & Shuman, P.A. 5

6 #2 IRA -t- Charity Transfers (Qualified Cntributin Deductin ) Many taxpayers will nw be claiming the standard deductin QCD can be claimed in additin t standard deductin Must be at least 70 ½ Max = $100,000 per persn in a year t charity Must be made directly frm IRA t charity, althugh a check payable t charity but delivered by taxpayer is fine COUNTS TOWARDS REQUIRED MINIMUM DISTRIBUTION! KEEPS AGI LOW! Impact n taxable prtin f SSA benefits Impact n future Medicare Part B and D premiums Impacts medical deductin if itemizing Impacts rental real estate lss deductin calculatin Cpyright 2018 Belfint, Lyns & Shuman, P.A. 6

7 #3 Charitable Cntributins Tax act increased limit n cash cntributins t 60% f AGI ( ) Bunching strategy Cntributing appreciated securities rather than cash Offsets higher incme such as large bnuses r sale f assets Dnr Advised Fund allws a 100% upfrnt deductin and yu can decide later wh gets the funds Charitable Remainder Trusts Cntinues a stream f incme fr life with remainder t charity Annuity trusts Unitrusts Pled incme funds Cpyright 2018 Belfint, Lyns & Shuman, P.A. 7

8 #3 Charitable Cntributins Cntinued Gift annuity Life insurance Real estate Stck f clsely held business Cpyright 2018 Belfint, Lyns & Shuman, P.A. 8

9 #4 Itemized Deductin vs. Standard Deductin 2018 Standard Deductin: $24,000 fr jint filers $18,000 fr head f husehld $12,000 fr single and married filing separately The additinal standard deductin fr being age 65 and/r blind unchanged Cpyright 2018 Belfint, Lyns & Shuman, P.A. 9

10 #4 Itemized Deductin vs. Standard Deductin - Cntinued The fllwing changes culd eliminate itemizing deductins: State/lcal tax limitatin f $10,000 N miscellaneus itemized deductins New limit n mrtgage interest deductin (new mrtgages limited t $750,000) Hme equity lan interest n lnger deductin (except fr hme acquisitins, cnstructin, and renvatins) Cnsider bunching deductins itemize in year 1 and claim standard deductin in year 2 (Specifically medical and charitable) 10 Cpyright 2018 Belfint, Lyns & Shuman, P.A.

11 #5 Funding Retirement Plans and IRAs Traditinal IRA cntributins may be deductible Rth IRA cntributins: Future withdrawals are tax-free if cnditins are met Excellent estate planning tl Fully fund emplyer spnsred plans, including 401(k), 403(b), Rth accunts 2018 limit is $18,500 (2019 limit is $19,000) If age 50+ an additinal $6,000 Establish and fund self-emplyment retirement plans Varius ptins Cntributin nt due until business return is actually filed Cpyright 2018 Belfint, Lyns & Shuman, P.A. 11

12 #6 Rth Cnversins N incme limit t cnvert Taxes paid in year f cnversin D nt have t cnvert entire amunt in single year Cannt re-characterize beginning in 2018 Gd strategy in years when cnversin recgnitin can be ffset by Lw tax bracket Other lsses Large itemized deductins Cpyright 2018 Belfint, Lyns & Shuman, P.A. 12

13 #6 Rth Cnversins Cntinued Distributins generally tax-free and penalty-free if nt withdrawn in the first 5 years after cnversin and age 59 ½ Reduces AGI (as ppsed t traditinal IRA) N RMD requirement at 70 ½ Heirs can inherit tax-free distributins Upfrnt taxes paid will reduce expsure t estate taxes Cpyright 2018 Belfint, Lyns & Shuman, P.A. 13

14 #7 Lsses Capital Lsses Limited t $3,000 per year Harvest lsses at yearend t ffset gains Unlimited carryver f excess lsses Passive Lsses generally limited t passive incme Unused PALs carried frward Sale f passive actively ( i.e. rental real estate ) frees up unused passive lsses related t activity and pssibly ther PAL s Casualty Lsses new tax law generally eliminates this deductin ther than lsses frm federally declared disasters Cpyright 2018 Belfint, Lyns & Shuman, P.A. 14

15 #8 Divrce & Separatin TCJA alimny will n lnger be deductible r includable in incme fr agreements signed r mdified after December 31, 2018 Deductin/incme inclusin still in place fr pre-2019 agreements Cpyright 2018 Belfint, Lyns & Shuman, P.A. 15

16 #9 Estimated Tax Payments TCJA required a re-wrk f Frm W-4 Many individuals nw find themselves ver r under withheld Penalty fr underpayment f tax unless ne f tw tests are met 90% f current tax liability test 100% f prir year's tax liability test ( 110% if prir year s AGI > $150,000) Run yearend prjectin t see where yu stand If Under withheld: Have additinal FWT taken frm remaining pay checks Take a distributin frm IRA and withhld taxes. Then return all funds within 60 days t IRA (including amunt withheld) Beware f multiple rllver rules Cpyright 2018 Belfint, Lyns & Shuman, P.A. 16

17 #10 Planning with Children/Grandchildren Put the kids n payrll in the family business Annual gift exclusin in 2018 is $15,000 per dnr t each dnee Electin t cntribute up t 5 times limit ($75,000) in a single year t 529 plan Earnings withdrawn fr qualified educatin expenses are taxfree New law permits tax-free withdrawals fr tuitin payments (nly) up t $10,000 each year per beneficiary New law changes Kiddie-tax calculatin Prir law-unearned incme taxed at parent s marginal rate Beginning in 2018 net unearned incme taxed using trust tax rates reaches 37% n incme > $12,500 Cpyright 2018 Belfint, Lyns & Shuman, P.A. 17