Now That The Dust Has Settled…Smart Tax Moves In 2018

6f4de03fbd0e22522a1d_KaplanlogoMed.jpg
6f4de03fbd0e22522a1d_KaplanlogoMed.jpg

Now that the dust has settled, here are some smart tax moves to lower your taxes and/or avoid higher taxes/penalties in 2018. These steps may be especially helpful if you live in high property and high income tax states (e.g. New Jersey, New York, California) since state and local tax deductions are capped.  Unfortunately all these changes mean you’ll need more time and energy to stay on top of your taxes.

Here are 4 strategies to lower taxes and/or avoid higher taxes/penalties:

1. Bunch Up Charitable Donations With A Charitable Trust. Charitable trusts can be set up at brokerage houses very easily. (note: I happen to use Fidelity, which requires a $5,000 minimum to set up). For example, you decide to defer $12,000 in 2018 and you plan on distributing these funds in 2018 and 2019. You benefit from the charitable deduction of $12,000 in 2018 if you itemize above the standard $12,000 (single filer) or $24,000 deduction for married couples filing jointly. Perhaps you anticipate having fewer deductions in 2019, so you plan on using the standard deduction next year. This advice also works for out-of-pocket medical deductions if your expenses exceed $7,500.  Note: even better than deferring dollars to charity, donate investments that have appreciated significantly to avoid long-term capital gains tax.

Sign Up for E-News

Example: Sara wants to donate to charity by gifting a mutual fund she purchased in 2010 for $3,500. The current value is $12,000. If she sells this position outright, she pays 15% long-term capital gains tax on the $8,500 gain (= $1,275 of taxes). This reduces her $12,000 donation to $10,725, net of tax. If Sara donates her $12,000 position directly to her charitable trust, she deducts the full amount of $12,0000 in 2018.

2. Pay Down Your Home Equity Loan ASAP If You Don’t Use the $ to “Buy, Build or Substantially Improve” Your Home.   In the “good old days” (through the end of last year), you could take out a home equity loan to help pay e.g. for college and the interest was tax-deductible. That’s no longer the case!

3. If You Use 529 Plan Assets To Cover K-12 (New IRS Provision), Make Sure It’s OK With Your State!  Some states automatically follow federal IRS codes while other states may consider withdrawing 529 dollars for pre-college education a “non-qualified distribution” and charge you penalties. The best way to proceed is to call your 529 Plan and ask them if withdrawals are penalty-free in your state of residence.

4. The Old Rule of Thumb Recommending Withdrawal of Taxable Assets Before Tax-Deferred Assets May Be Out the Window.   The general rule of thumb for many tax payers was 1) withdraw assets first from taxable accounts and 2) let your tax-deferred accounts grow since you’ll pay lower income taxes when you’re retired. Now it makes good tax sense to take a mixture of taxable and tax-deferred withdrawals to cover retirement expenses – especially if you defer Social Security until age 70. Federal income tax rates in 2018 are lower for many tax-payers but they could be higher after age 70 ½ if Required Minimum Distributions (RMDs) from tax-deferred accounts bump up your overall ordinary income into higher tax brackets.

Example:Seth and Susan are both 68, married and retired. Both will postpone Social Security until they turn 70. After consulting their advisor and CPA, they decide to withdraw $60,000 from Seth’s IRA in 2018. They expect their ordinary income to remain below $77,200 so they pay 0% long-term capital gains tax on taxable investments they plan to sell to cover the balance of living expenses. As long as Seth and Susan don’t breach $77,400 of taxable income in 2018, their top federal tax bracket is 12%.  

In conclusion, you may need to spend even more time thinking about taxes in 2018 – and taxes are not everyone’s cup of tea. The current tax overhaul is pushing the federal deficit ever higher so it’s prudent to bulk up on retirement savings. Our grandchildren may have to boost taxes significantly in the coming decades and that may eat into entitlements like Social Security and Medicare.

 

 

Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® Practitioner with 30+ years of investment/planning experience. Kaplan Financial Advisors upholds the highest fiduciary standards in the planning industry.  Eve opened Kaplan Financial Advisors in 2004 to provide comprehensive financial planning and investment management services to single women and couples. Eve can be reached at 908-898-0549 or Eve@KaplanFinancialAdvisors.com.  Visit her website at  www.KaplanFinancialAdvisors.com

 

Copyright © 2011-2018 by Eve Kaplan

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Berkeley Heights

Sleep out at Covenant House

June 18, 2018

I can enjoy the same movies over and over like it were the first time to see them.  My kids roll their eyes at this.  Well, many unimaginable things happen as you become a certain age, and you tend to learn to accept those things graciously as gift.   But I remember the movie “The Blind Side.”  Until I saw that movie, I didn’t know homeless children ...

Moms Helping Moms Foundation Receives Overwhelming Support from Community to Help Mothers this Mother’s Day

June 20, 2018

Mother’s Day is often celebrated by showering the women in our lives with beautiful flowers, heartfelt cards, and taking them on special outings to show them how much they mean to us. Yet, for many low-income mothers living in our community, they struggle each day to provide the basics for their babies.

Diapers are a necessity yet one in three families in the United States lack an ...

New Providence Recreation Offers Adult Summer Programs

New Providence Recreation is accepting registrations for adult evening and daytime programs that run June 25th – August 31st.  Most of the eight to nine-week sessions are under $65; several programs are free for NP residents!  All levels of fitness and those returning to exercise are welcome.

Programs are offered starting at 6 a.m.. If you are seeking weight loss, core body ...

Summit Community Blood Drive is Sunday; First 50 donors Will Get a Free Union Theater Movie Pass

The weather may have just started to warm up, but New Jersey Blood Services (NJBS) is already urging the public to donate blood as we head into the summer months.  With schools closing and vacations scheduled, less people donate blood from June through August but transfusions are still needed for local patients.   

“We’re especially thankful to our dedicated donors ...

Union County College Hires New Dean of Humanities

CRANFORD – Dr. Melissa R. Sande is the new Dean of Humanities for Union County College. Dr. Sande joined Union in the fall of 2013 as a full-time instructor of English. She has more than ten years of teaching experience and has previously served as a program coordinator, writing tutor, and an adjunct instructor.

As the Dean of Humanities, Dr. Sande will be responsible for the supervision ...

Watchung Borough Mayor and Council Approve Affordable Housing Settlement

June 9, 2018

WATCHUNG, NJ -The Watchung Borough Council voted on Thursday night  to settle its third round affordable housing obligation mandated by the state of New Jersey. Watchung Borough’s immunity from builder's remedy lawsuits  expires on June 30.

 Mayor Stephen Pote was forced to cast the deciding vote after the council deadlocked at 3-3.

Scotch Plains Mayor Al Smith Attends Gun Safety Bills Signing Ceremony with Gov. Murphy in Trenton

June 14, 2018

TRENTON, NJ -- Mayor Al Smith attended a gun safety package bill signing ceremony at the Richard J. Hughes Justice Complex in Trenton on Wednesday with Governor Phil Murphy. Mayor Smith joined a bipartisan group of local and state elected officials, as well as members of Moms Demand Action of Union County, at the event. 

“As a leader in Sandy Hook Promise, I was happy to accept the ...

What's Hot and What's Not

Summer is a great time to take a step back, sip a cool beverage, and take a look at what’s going on in the world of college admissions.  Departments use the summer to evaluate how their year went and plan on any changes they want to make for the fall.  Did they over-enroll? Under-enroll?  What application materials were useful to them?  Which were redundant or time ...

How to Design Your Ideal Retirement

Would you like to design your ideal retirement? Where do you begin? First of all, what does retirement mean to you? If you’re in a relationship, does retirement mean the same to you as it does to your partner? Do you know if your “ideal retirement” is affordable or just a pipe dream?

In past generations, retirement planning didn’t involve very much. You stopped work ...

Cool Ways to Save Money This Summer

As the summer temperatures rise, home cooling costs rise as well. But there are ways to help save money without sweating the heat:

To increase your cooling system’s efficiency by as much as 20%, get it checked out for summer.  A technician will clean the condenser, make sure you have the optimal amount of refrigerant, and ensure the airflow over the coil is ...