Tax Planning Tips

New Standard Deduction


Leverage the standard deduction by bunching deductible expenditures (such as medical expenses) in one year or the other. Are your 2018 itemized deductions (Line 40 of your 2017 tax return Form 1040) likely to be just under, or just over, the standard deduction amount listed below for 2018? If so, consider the strategy of bunching expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. The 2018 standard deduction is $24,000 for joint filers, $12,000 for those single filers, and $18,000 for head of household filers. 


A note from the desk of Henry Dean: If your itemized deductions (annual mortgage interest, property taxes and charity) miscellaneous deductions, for the most part, are no longer deductible, is close to your standard deduction (which pretty much doubled) - call us before year end. Also, do not forget to donate tangible property to charities. On your charitable contributions receipt be sure to itemize the items given to charity.


Because charities (Churches, Temples and other 501 (c) organizations such as Salvation Army, Goodwill, Vietnam Vets etc.) took the most severe hit with the new tax laws; consider gifting unused vehicles or appreciated stock before year end. By gifting long term (stocks held more that one year) appreciated stock to a charity you will receive a deduction (if you itemize) of the Fair Market Value on your tax return and the charity will be able to sell the stocks tax free.  

Gift Tax Misconceptions

The most basic estate tax planning tool is the ability to gift (cash or tangible property) to anyone up to $15,000 per recipient. Gifting removes assets from the donor's estate which reduces the 

amount of future taxable estate assets.

If the donor gifts more than $15,000 to anyone during the year, then the donor must file a gift tax return (form 709). Tax is normally not owed as a result of filing a gift tax return (unless the gift(s) over a lifetime exceeds the estate exclusion amount which is $11,180,000 for 2018).

*Gifts do not include amounts paid for medical, education, or political contributions.

Avoid Tax Underpayment Penalties

Taxes that are withheld from wages are deemed to have been withheld on a ratable basis on the estimated tax payment dates throughout the year. This can be beneficial if at year end you find that you have underpaid prior quarters' estimated taxes.  If your employer will withhold more tax, a portion of that amount will be deemed to have been retroactively and evenly paid in prior quarters, possibly mitigating an estimated tax underpayment penalty. Similar withholding rules apply to distributions from IRAs.  If it is advantageous, you can withdraw from your IRA and have tax withheld.  The taxes that are withheld are deemed to have been withheld on a ratable basis on the estimated tax payment dates throughout the year.  Because you would incur income tax on withdrawn amounts, this is highly encouraged if you are over 70 1/2 and have to withdraw required minimum distributions.  In that case, you would not be incurring additional income tax since you must withdraw  from your IRA as opposed to having more tax withheld from your required minimum distributions.

 Method #1: 90% Rule Each quarter, pay 25% of 90% of the current year's tax.  This requires that you predict the current year's tax.  

Method #2: 100/110% Rule

  • If your adjusted gross income (AGI) on last year's return was $150,000 or less and you filed singly or jointly ($75,000 for married filing separately), then your quarterly payment under this method must be 25% of 100% of last year's tax.  This requires no prediction.
  • If your AGI was more than these amounts, then your quarterly payment must be 25% of 110% of last year's tax (which is mathematically equivalent to 27.5% of 100% of last year's tax).

Method #3: Annualization Each quarter, based on the year-to-date pace of your income, you predict what would be 90% of the current year's tax.  You pay 25% of that for the first quarter.  For the second quarter, you pay whatever additional amount would make your year-to-date estimated tax payments total 50% of 90% of the predicted tax. This annualized method can be favorable if your income is not earned evenly throughout the year.    

Estate Tax


Even though the Tax Reform of 2017 increased the estate tax exclusion amount from 5,000,000 to 10,000,000 per person (11,180,000 for 2018), estate planning is still important. If your estate is in the $5,000,000 range, there is opportunity. The tax planning opportunity in the new increased estate exclusion amount is the portability of unused exclusion amount of the first spouse to die. For example, if the net estate (assets minus liabilities) is $4,000,000 and the family assets are properly titled 2,000,000 for each spouse, the unused exclusion amount upon the death of the first spouse of $9,180,000 (11,180,000 minus 2,000,000) can carry over to the surviving spouse. Therefore, if the surviving spouse should later have an inheritance, find oil on their property or hit the lottery (to name a few increases in wealth) their estate can shelter $ 20,180,000 ( $ 11,180,000 + $ 9,180,000) from estate taxes.

Consider Accelerating Expenses

It may also be advantageous to accelerate some deductible expenses from next year to this year.  For example, if you're self employed and a cash method taxpayer, you can accelerate expenses by paying all of your business and itemized deductions before December 31, 2018.  You can also reduce your taxable income by deferring income to 2019.

Know your new  itemized deductions  (property taxes are limited to $ 10,000  per year and miscellaneous itemized deductions were greatly modified).  We will be updating our web site periodically so keep reviewing.

Be Bold About Timing Investment Gains and losses


As you evaluate investments held in your taxable brokerage accounts, consider the impact of selling appreciated securities this year. The maximum federal income tax rate on long-term capital gains realized from 2018 sales of securities held longer than a year is only 15% and for high income individuals is 20%. Therefore, it often makes sense to hold appreciated securities for at least a year and a day before selling. Selling under performing securities (securities that are currently worth less than you paid for them) before year-end may also be beneficial. The resulting capital losses will offset capital gains from other sales this year, including short-term gains from securities owned for one year or less, which could otherwise be taxed at higher ordinary income tax rates. Do not concern yourself with paying a higher tax rate on short-term gains if you have enough capital losses to shelter them.


If capital losses for this year exceed capital gains, you will have a net capital loss for 2018. You can use that net capital loss to shelter up to $3,000 of this year's high taxed ordinary income from salaries, bonuses, self-employment, etc., ($1,500 if you're married and file separately). Any excess net capital loss is carried forward to next year.


Finally, most business retirement plans require funding before year end in order to get the deduction in 2018. Therefore, if your business is showing a profit for 2018, be sure to fund 401ks, SIMPLE IRAs, and other similar plans before year end (both employer portion and employee portion). If you do not own a business or you are not enrolled in your employer's retirement plan, you have until 4/15/2019 to contribute to your IRA (call us if you are not sure about whether to contribute to a traditional IRA or a Roth IRA). 



Trustees and personal representatives should be sure to distribute distributable net income (DNI) earned by trusts out to the beneficiaries before year end, 12/31, or be subject to considerable trust taxes.

Beginning in year 2018, a trust is subject to a 37% tax on amounts of taxable income exceeding $12,500. If the trustee distributes DNI out to the beneficiaries of the trust before 12/31/18 (keeping in mind the 65 day rule - call our office if you are in this situation), then the 37% rate is not relevant until taxable income exceeds $500,000 for single individuals and $600,000  for married individuals filing jointly.

Also, trusts are subject to a 3.8% net investment income (NII) tax. The NII was created by the Health Care and Education Reconciliation Act of 2010 to help fund health care reform. As previously noted, the highest income tax bracket threshold applicable to trusts is $12,500 for 2018. The thresholds concerning NII for single and joint filers are $200,000 and $250,000, respectively for 2018.

It is generally wise to distribute DNI from trusts to its beneficiaries before year end (or use the 65 day rule). Trustees and financial advisers who think it is prudent to hold onto money earned by a trust are not exercising due professional care and this is realized when the tax returns are filed. 

Seniors age 70 1/2 take your required retirement distributions before year end


The tax laws generally require individuals with retirement accounts to take annual withdrawals based on the size of their account and their age beginning with the year they reach age 70 1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.


If you turned age 70 1/2 in 2018, you can delay your 2018 required distribution to 2019. Give this decision careful consideration, though, as this will result in two distributions in 2019 - the amount required for 2018 plus the amount required for 2019, which might qualify you for a higher tax bracket or trigger the 3.8% net investment income tax. However, it could be beneficial to take both distributions in 2019 if you expect to be in a substantially lower bracket in 2019.

Put Your Children 17 yrs. of Age and Older to work

The new tax laws completely eliminates the deduction for exemptions. Therefore, taxpayers with children have lost valuable tax treatment in the areas of dependency deductions and the ability to deduct students, 24 yrs of age and under, from their parents tax returns. To counter this unfavorable tax treatment parents who own their own businesses should put their children to work in the family business.  The family can now shelter up to $ 12,000 per child by letting them file their own tax returns.

Parents of children under 17 yrs of age can get a $ 2,000 child tax credit (up from $ 1,000) if they are listed as a dependent on their parents tax return.