With President Trump having signed the GOP tax bill today, new tax planning opportunities are now available – but you must take advantage of many of them within the next nine days, before 2018. John O. McManus, founder of top-rated estate planning law firm McManus & Associates, makes the following time-sensitive recommendations in light of tax reform and the reduction of income tax rates:
Accelerate your income tax deductions. Certain itemized deductions, i.e. income tax and real estate tax deductions, will be capped at $10,000. Pay your January estimated taxes in December; make your January mortgage payment in December; deduct any unreimbursed medical expenses; make your 2018 charitable donations in 2017. Some commentators suggest prepaying property taxes that have been assessed, such as the 2/1/18 and 5/1/18 installments – but it depends on the state. Also, the American Institute of Certified Public Accountants has opined that CPAs should advise clients that payments in 2017 of state tax liabilities projected for 2018 are not deductible on their 2017 federal income tax returns. You should be mindful of the fact that these additional payments could cause you to be subject to the alternative minimum tax, which results in you losing the benefits of these state and local taxes.
Prepay in 2017 any business entertainment expenses, such as sports tickets or green fees, and membership dues for clubs organized for business. The final tax reform bill disallows these expenses; it will continue to allow the deduction of 50% for food and beverages associated with a trade or business.
Postpone/defer receipt of income until 2018 to take advantage of the lower tax rates.
Review your potential capital expenditures. Under the final tax reform bill, until January 1, 2023, a business will be able to expense 100% of the cost of the non-real estate property as first-year additional depreciation (bonus depreciation). (There is the possibility that 100% expensing may be available for property placed into service after September 27, 2017). Starting in 2023, the allowance of 100% is phased out by 20% each year.
While rates are higher in 2017, make gifts to charities and family foundations with appreciated assets. Because of the lower limitation of 20% of AGI for appreciated stock to a foundation, you should split your gift between this year and next.
Consider gifting low-basis stock instead of selling to raise cash for gifting that could lead to gains.
Fund a charitable remainder trust with concentrated positions in appreciated securities in order to diversify without adverse tax consequences associated with selling appreciated securities.
Harvest your losses to offset capital gains.
Establish and fund qualified plans. Consider making a gift of up to $5,500 to either a traditional or Roth IRA for your children or grandchildren who are not funding their own IRAs, but have enough earned income to report.
Contribute up to $28,000 gift-tax free per married couple ($30,000 for gifts made in 2018) to a 529 Plan, which grows free of income tax. The final tax reform bill will allow withdrawals for private, elementary and secondary school expenses up to $10,000 per year.
Make annual exclusion gifts to chosen loved ones of $28,000 per married couple ($30,000 for gifts made in 2018).
Make gifts into trusts for children/grandchildren.
Make unlimited gifts directly to educational institutions and medical facilities.
Make distributions of income from trust accounts and estate accounts to lower the income tax liability. Estates and trusts are taxed at the highest income tax rate (and a lower threshold at which the 3.8% Medicare surtax applies). Therefore, it may make sense to distribute income to the beneficiaries to be taxed at the beneficiaries’ lower income tax rates.
“Trump’s new tax bill creates tax planning opportunities before year-end,” commented McManus. “Find time for last-minute tax planning as soon as you finish your last-minute holiday shopping.”
For trusted advice on tax and estate planning, call McManus & Associates at 908-898-0100. Learn more about the award-winning firm at www.mcmanuslegal.com.
McManus & Associates Founding Principal John O. McManus was recently tapped for insight on digital estate planning by MarketWatch (WSJ), which has over 16 million unique visitors per month. Andrea Coombes’ column, “How to include your digital assets in your estate plan,” explores the importance of accounting for one’s online presence – from email and “bank accounts to Facebook, PayPal and more” – when planning for the transfer and administration of assets.
From the article:
If you fail to account for those digital assets in your estate plan, you risk burying your family or friends in red tape as they try to get access to and deal with your online accounts that may have sentimental, practical or monetary value.
John’s comments make up #5 and #6 on the article’s list of tips:
Recently, the New York Times ran a story by Nelson D. Schwartz, titled “In an Age of Privilege, Not Everyone Is in the Same Boat (A1, April 24).” John O. McManus – McManus & Associates’ founding principal who grew up in the Bronx but has worked with high net worth families for 25 years – penned the Letter to the Editor below in response:
The rise in capital gains tax rates and the higher federal estate tax exemption have shifted the estate planning paradigm. Across the nation, long-term capital gains tax rates now range from 25% to 33%, with the combination of the top federal, state and local rates, along with the Medicare surtax. This demands a fresh look at current planning strategies.
When assets are included in an estate, they are subject to estate tax, but the assets enjoy a step-up in basis for income-tax purposes. Gains tax can then be avoided. However, if there is no estate tax because the gross estate assets are below the estate tax exemption amount, then it may make sense to keep assets inside the estate.
Many estate planning attorneys have spent the first half of their careers getting assets out of their clients’ estates, but now they might spend the second half of their careers getting assets back into their clients’ estates (for those individual estates under $5.43MM or joint estates under about $11MM).
As part of McManus & Associates’ Educational Conference Call series, John O. McManus this month examined how to shift gears in light of new, unique opportunities. We invite you to listen to the recording to find detailed information on the Top 10 issues and planning opportunities related to capital gains tax.
Owning artwork is not only a cultural indulgence, but the sophisticated (and the lucky) possess artwork as an investment that can provide a handsome return. Auction houses, most recently Christie’s, have seen record-setting bids as fine art wrestles to take its position as an asset class equal to equities, commodities, and other hard assets. In light of the increase in capital gains tax combined with the collector’s desire to reduce the imposition of income tax and estate tax, the field is ripe for sophisticated planning.
As part of it Educational Conference Call series, John O. McManus this month discussed strategies to addresses the hard and soft issues surrounding the ownership and transfer of art. We invite you to listen to the recording to find detailed information on the Top 10 issues with owning and gifting artwork that follows, whether you’re an artist, dealer, investor or collector.
Lynnette Khalfani-Cox is known as The Money Coach®; she’s a personal finance expert, television and radio personality, and the author of 12 books, including a New York Times bestseller. She recently reached out to John McManus for guidance on how to avoid a quandary like the one her family faced when three loved ones passed away in short order.
Writing for Get Rich Slowly, a personal finance publication with over 750,000 regular readers, The Money Coach® shares her heartbreaking story, which includes a nightmare custody proceeding after her sister passed away.
Paul Sullivan writes the “Wealth Matters” column for the New York Times, which shares insights on the mindset and strategies of the affluent. Recently, McManus & Associates Founding Principal John O. McManus chatted with Sullivan about the decisions that adult children who are expected to take over a family business face and connected Paul with his client Sharon Madison, a remarkable woman who successfully navigated the challenge of family business succession.
Sullivan’s article leads with Madison’s dedication that kept United Building Maintenance, the business that her father started, on its successful path after he became ill.