Year End Financial Planning Corner: To Itemize or Not Itemize, That is the Question
November 20th, 2018

We can’t believe how quickly the year has passed. With the markets getting most of the attention the last few weeks, we wanted to reach out and help you plan ahead for your end-of-year to do items and get ready for a successful 2019. The most important question will be whether you will itemize or not. It will drive many of the decisions you will make as we enter 2019. Before we get into the details, a few deadlines below:

  • End of year donations: If you plan to give stock or a required minimum distribution to your favorite charity, please reach out immediately. We can help you coordinate with the charity to process your gift.
  • Required Minimum Distributions: If you haven’t heard from us already, we are reaching out to you this month to plan for your required minimum distributions from your IRAs and beneficiary IRAs.
  • For those of you with a Donor Advised Fund, the deadline for contributing assets held outside of your investment accounts at Meridian is on November 26th. The deadline for donating assets held here is December 14th. Cash will be accepted until December 27th. Note that the charitable contribution AGI limit is slightly higher at 60%, but this change doesn’t affect most taxpayers, which I delve into in more detail below.
  • For those of you on Medicare, open enrollment will end December 7th.
  • Have you been thinking of gifting to a family member or friend? Annual Gifting Exclusions have increased to $15,000 per person per gift. You can give $30,000 to each recipient if you are married. These gifts are free from gift tax without using any of your estate and gift tax exemption.

As the new tax code was signed into law in 2017, affecting all 2018 returns, the standard end of year items require a little more forethought and planning. Before you make any adjustments, be sure to check with your CPA or tax advisor. Some items to consider: Tax rates and brackets changed considerably. Due to some of the changes in deductions and exemptions, your personal situation and how you think about what is taxable and deductible may have changed.

Many people will no longer itemize, as the standard deduction increased dramatically to $24,000 for married couples filing jointly, $18,000 for head of household, and $12,000 for everyone else. Personal exemptions have been eliminated, and for high income earners, the Pease limitation has gone away, which limited personal itemized deductions. The big change is that the state and local income taxes are now limited to $10,000 per year – this will affect those of you with large property tax in Texas or Florida, and those of you in high income tax states like California. This limit does not apply to property taxes on business properties. Despite the large amount of press, limitations on mortgage interest only changed for houses purchased after 12/15/17. The $1MM mortgage cap was grandfathered in for existing debt. Going forward, new mortgages and refinances will be capped at $750,000 of mortgage indebtedness. Miscellaneous itemized deductions have been eliminated also, affecting tax preparation fees and managed asset fee deductibility. For those of you with children under 17, the child tax credit is increased to $2,000 per child and the phase out for joint filers was increased to $400,000 for married couples, and $200,000 for all others.

For those of you affected by the Alternative Minimum Tax, the threshold exemption amount changed dramatically to $1 Million Married Filing Jointly and $500,000 Single. This will sharply reduce the number of taxpayers affected. There are no changes on the net investment income tax, most often referred to as the Medicare surtax. The Qualified Dividend and Capital Gain rates and exclusion of a gain on a primary residence rules were not changed, though the brackets to qualify for the reduced rates changed slightly.

As most of you know by now, the estate and gift tax exemptions were increased to $11.2MM per person in 2018, which will be indexed for inflation. This is an important time to reconsider your estate tax plan and update the language to take advantage of the change or simplify the planning to lessen complexity.

If you have questions about how these changes apply to you, please don’t hesitate to reach out to me. I’m happy to guide you or discuss in more detail with your tax planner.

Happy Thanksgiving,

Meagan K. Moll, CFP®, CIMA®, CPWA®
Partner & Wealth Advisor

Josh L. Galatzan, CIMA®
Founder & Managing Partner

Kirk Price
Managing Partner

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