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7 Tax Planning To-Dos Before Year End

With the end of 2018 approaching, many of us find ourselves developing resolutions towards self-improvement. And for the work we do with our clients around this time of year, this usually relates to financial planning.

Getting your finances in order is a great resolution to a more happy and prosperous new year. Yet we know that this can be daunting. So to help, we are taking a moment to share with you seven things you can do before the year ends. The steps are outlined below and designed to help you take action today. The rewards are potentially too great, so why not act on an early resolution by implementing these seven items before it is too late. Call them last-minute financial planning ideas that you should consider before we ring in 2019.

1. Get together with your tax pro: Tax planning for 2019, now that we have further clarity on the TCJA.

Ok, we know you are going to need a little help, so let’s set up that appointment we have been putting off. At the end of 2017, The Tax Cuts and Jobs Act (TCJA) was signed into law and resulted in significant tax reform. Even though the TCJA is effective for 2018 tax year, there was much confusion on how to apply many of the new provisions of the act. Throughout 2018, additional guidance has been provided to clarify many of these questions, with further clarification expected on remaining outstanding issues and questions. It may be too late to act this year, but it would be a good time to get together with your tax professional before the start of 2019 to determine steps which can be taken that may save you taxes for next year.

Some of the TCJA provisions which were further clarified in 2018 include:

  • Rules clarifying the use of the up to 20% deduction for qualified business income from pass through business entities which are not C Corporations (e.g. sole proprietorships, partnership, S Corporations, etc.).
  • How to defer and reduce capital gain taxes derived from a sale (like a sale of business or appreciated stock) by investing those sums into opportunity zones. (Note: in addition to the proposed regulation released earlier this year further guidance on opportunity zones are expected at end of 2018 or early 2019).

2. Be more charitable: Contributions to charities are still viable, although you may lose other deductions.

We say it every year but the TCJA made significant changes to the deduction rules that are worth revisiting, especially for those of you that are charitably minded. The standard deduction has nearly been doubled for most taxpayers, while certain itemized deductions have either been eliminated or capped.  For example, the deduction for state and local income taxes paid (including property taxes) has been capped to $10,000, which will likely negatively impact you if you live in a high income tax state (such as Hawaii and California).  As a result, since you cannot itemize your deductions unless they exceed your standard deduction – with the increased amount of $24,000 for joint filers and $12,000 for single filers – many taxpayers who previously itemized their deductions may not be able to do so for 2018. 

A deduction that was not impacted is charitable donations. If you normally give to charity and doing so this year allows you to itemize your deduction (where your total itemized deductions exceed the standard deduction amount), continue to make those donations by year end. If your deductions are still not enough for you to itemize, you have a decision to make since there will not be a tax incentive to donate. If you are in this position, one way to maximize your charitable deductions, especially if you give annually to charities, is to bundle those gifts together in a single year in an amount which will allow you to itemize your deduction the tax year that the bundle donation is made. If you want to make the deductible donation this year but want to decide later as to which charities will receive the donations, you can set up and give money to a donor advised fund.

Other planning tips to increase deductions

  • Paying 2nd half of property taxes due before year-end. Even if this exceeds the $10,000 cap on state and local income taxes and therefore are not deductible for Federal income tax purposes, it may still be deductible for state income tax purposes (for example it will still be deductible in California).
  • Pay mortgage payment due in January 2019 before the end of 2018 to accelerate the interest on that payment into this year, providing additional 2018 deductions.

3. Contribute to an IRA: A proven way to save for retirement.

Contributing money to a traditional IRA is a great way to save money for retirement and on taxes as well, especially if you are not actively contributing to your company’s retirement plan or if your company does not have one. Contributions to a traditional IRA are generally deductible on your tax return. The funds in an IRA also grows tax-deferred until withdrawn at retirement, when those withdrawals are taxed as ordinary income. You can contribute to an IRA through 2018 tax filing day. If you do not have an IRA account, one can be generally be set up fairly quickly online with various brokerage companies.

4. Become a convert: Consider a conversion of part or all of your Traditional IRA to a Roth IRA.

The volatile market for this year may allow you to convert a portion or all of your traditional IRA to a Roth IRA while resulting in a smaller tax liability than if you had done so previously when your accounts were at a higher value. You will pay taxes now on the amounts converted, but afterward you will generally be allowed to take tax free withdraws from these accounts during retirement and will not be subject to required minimum distributions. In determining whether or not you should convert you should look at such factors such as when the funds are needed, applicable current tax rate vs. projected future tax rate, and if you have funds to pay the taxes on the conversion.

5. Give till it hurts: Donate required minimum distributions to a charity

If you are over 70 ½ and are receiving required minimum distributions from your IRA or other retirement account and do not need those funds for current living needs, you may want to consider donating those distributions to charity. If you donate those funds directly to the charity before December 31 of this year as a qualified charitable distribution you can avoid recognizing taxes on these required withdrawals.

6. Take a loss: Maybe it is time to recognize losses on your portfolio especially if you have cashed in on your winners.

Given the volatility of the markets this year, you may have unfortunately owned positions with losses. Although no one likes to experience losses, the news is not all bad since these losses can be used to offset realized gains from the sale of other positions. The key is that these losses have to be realize or sold, so consider dropping these losing positions to offset realized gains from sale of winners.

You need to be careful though if you want to re-purchase stocks with losses. If you do this, the wash rule may apply. If the wash-sale rule applies you will not be able to deduct losses if you sell or trade a security at a loss and you then buy a “substantially identical” stock or security within 30 days before or after this sale. Therefore, if you plan to repurchase a position you sell at a lost make sure you talk to your tax professional to make sure you do not trigger the wash rule.

7. Build your legacy: Make gifts to heirs and help instill some financial stewardship of your wealth

Perhaps that notion is too daunting, but you do have until December 31 to make gifts of up to $15,000 per recipient that are not subject to gift taxes. If you can also use this to open up a conversation about finances with your kids, then it provides an added bonus. We call this “building a legacy” and believe it is the highest form of how to utilize one’s wealth. But before we speak in too grandiose terms, you can act today by making the $15,000 transfer to your children. This gift is known as the annual exclusion gift and is means of transferring wealth to your children or grandchildren that are not subject to gift taxes. Since this gift is per recipient, $15,000 can be made to each individual in this tax-favored basis by the end of the year. 

Ok, so there you have it. Seven things you can do this week to set yourself up for success in 2019. While the markets are undoubtedly going to be unpredictable in the coming weeks, we can say with some certainty that these seven steps will better position your financial plan heading into whatever markets we experience. If you need further motivation to get started or want to plan out the rest of 2019, please contact anyone on our wealth planning team to learn more.

You can also read more about how we help you plan your path to prosperity by visiting:


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Daniel Fan, J.D., LL.M., CFP®, Senior Managing Director – Head of Wealth Planning
About the Author
Daniel Fan, J.D., LL.M., CFP®, Senior Managing Director – Head of Wealth Planning
Daniel Fan serves as the Senior Managing Director – Head of Wealth Planning for First Foundation Advisors. In this role, he oversees the firm's Wealth Planning department and advises clients on sophisticated wealth strategies. Mr. Fan has over 15 years of experience as a Wealth Planner and specializes in evaluating and optimizing all clients' wealth plans to meet their financial needs. He works closely with all teams across First Foundation and ensures he delivers a personalized experience to support all clients. Prior to joining the firm, Mr. Fan was a Senior Vice President, Director of Wealth Planning and Insurance at First Bank Wealth Management, where he implemented the financial planning process for all business segments. He also worked as the Vice President, Regional Director, Senior Wealth Strategist at Union Bank Private Wealth Planning and as a Senior Vice President, Senior Wealth Planning Strategist at Wells Fargo Private Bank. Mr. Fan is a Certified Financial Planner® and holds his Juris Doctorate and Master's in taxation from Pepperdine University School of Law and Golden Gate University respectively. He earned his Bachelor's degree from the University of California, Los Angeles. Read more