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With our complicated and ever-changing tax laws, you can't afford to ignore tax planning. The strategies discussed here may help you pay less in taxes. We'd be happy to assist you.

This Publication is intended to provide general information to our clients and friends. It does not constitute legal advice, nor is it intended to convey a thorough treatment of the subject matter. Every person's situation is unique please talk with us.

Tax Cuts and Jobs Act

Selected items that impact the tax on individuals for tax years 2018 through 2025:

  • Maximum tax rate is reduced to 37%. (See chart below)
  • Standard deduction is increased to $24,000 for married and $12,000 for single.
  • Personal exemptions are repealed at all income levels.
  • Individual deduction for state and local taxes for income, sales and property is limited in the aggregate to $10,000 for married and single filers, $5,000 for married filing separately filers
  • Most miscellaneous itemized deductions that were subject to the 2% of adjusted gross income floor will no longer be allowed. Common examples of these expenses are tax preparation fees, investment expenses, union dues and employee's unreimbursed business expenses.
  • Interest deduction on a home equity loan is limited to a maximum $100,000 loan used to substantially improve a qualified residence of the taxpayer. The interest on a home equity loan for any other purpose will not be deductible.
  • Maximum mortgage acquisition debt is limited to $750,000 ($375,000 for married persons filing separately) for deductible interest.
  • Child tax credit for each qualified child is increased to $2,000 and the phase-out of this credit begins at $110,000 for single filers and $400,000 for married filers. A partial credit is allowed for certain non-child dependents.
  • $10,000 per year of Section 529 plan funds may be used for elementary or secondary school tuition.
  • Personal casualty losses are nondeductible unless attributable to a federally declared disaster.
  • Alimony will not be deductible by the payor or includible by the recipient for post-2018 divorces.
  • Charitable deduction is denied for contribution to a college or university in exchange for athletic event seating rights.
  • Moving expense deduction is eliminated except for certain armed forces members.
  • The ACT repeals the ability to re-characterize one kind of IRA contribution as another, for example, to designate a traditional contribution as a Roth contribution or vice-versa
10%   $0 - $9,525 $0 - $19, 050
12%   $9,525 - $38,700 $19,050 - $77,400
22%   $38,700 - $82,500 $77,400 - $165,000
24%   $82,500 - $157,500 $165,000 - $315,000
32%   $157,500 - $200,000 $315,000 - $400,000
35%   $200,000 - $500,000 $400,000 - $600,000
37%   $500,000+ $600,000+

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Capital Losses

You can deduct capital losses to the extent of any realized capital gain on a dollar-for-dollar basis. Once you've offset all your capital gains, you can deduct capital losses against other taxable income up to a total of $3,000 per year ($1,500 for a married person filing separately). Any unused capital losses are carried forward for deduction in later tax years subject to the same limits.

  • To the extent possible, time investment gains and losses to avoid large capital loss carryovers that will take several years to deduct.

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Save taxes by shifting income

You may give up to $15,000 of cash or other property in 2018 to each of any number of individuals annually without federal gift tax. Married couples that agree to "split" their gifts can give $30,000 per recipient annually.

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Tax-deferred retirement savings plan

An employer's 401(k) or other tax-deferred savings plan (e.g. a 403(b) or SIMPLE plan) may offer you a convenient way to save toward your retirement. You don't pay taxes immediately on the salary you defer to your plan account. Income taxes aren't due until you receive distributions from the plan. Your account's investment earnings - interest, dividends, and capital gains - also are tax deferred. With no taxes taken out, your savings have a chance to grow and compound much faster.

  • If you are eligible, contribute to your employer's tax-deferred savings plan - especially if your employer matches part of your contribution. You can reduce current incomes taxes while helping to provide the financial security you'll need during retirement. For example, Kris contributes $5,000 of her salary to her employer's 401(k) plan this year. Since she's in a 22% tax bracket, contributing to the plan reduces her income taxes by $1,100. Any earnings on her 401(k) plan investments also are tax deferred.
Maximum Effective Deferral to 401(k) and 403(b)  $18,500 -  2018
Maximum Effective Deferral to SIMPLE IRA Plans  2018
Maximum Annual Contribution to Defined Contribution Plans The lesser of 100% of compensation
or $55,00 - 2018
Maximum Annual Contribution to Keough or SEP-IRA The lesser of 25% of W-2
or $55,000 - 2018
Maximum Annual Compensation Taken into Account for Contributions $275,000 - 2018
Individuals who will be at least age 50 by the end of the year can make higher amounts of elective deferrals
401(k) and 403b Plans Elective Deferral $24,500 - 2018
SIMPLE Plans Elective Deferral $15,500  2018
  • The IRS doesn't allow you to avoid paying taxes on 401(k)s, traditional IRAs, or other tax-deferred plans forever. You'll generally have to withdraw minimum amounts - called "required minimum distributions" or RMDs each year after you reach age 70½. The IRS has simplified the rules for computing annual RMD amounts. Usually, you can compute your RMD using a uniform table based on your age.

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Traditional/Roth IRA's and their benefits

Individuals who earn at least $5,500 in compensation may contribute up to $5,500 total to one or more IRAs. Married couples may contribute as much as $11,000 ($5,500 for each spouse), even if one spouse does not work, as long as the joint compensation is at least as much as the contributed amount. An additional $1000 catch-up contribution is allowed to individuals who have reached age 50.

Traditional IRAs - Contributions to traditional (non-Roth) IRAs may be tax deductible. You may deduct your entire allowable contribution - no matter how high your income is - if neither you nor your spouse is eligible to participate in an employer-sponsored retirement plan. When one or both spouses are eligible for plan participation, deductions for contributions to traditional IRAs may be limited or eliminated when AGI exceeds specific levels.
Roth IRAs - A Roth IRA is a nondeductible IRA in which account earnings are potentially tax-free, rather than tax deferred. Tax-free distributions of Roth IRA earnings are available after a five-year waiting period when:

  • The account owner is at least age 59½
  • The money is used for first-time home buying expenses up to $10,000
  • The account owner becomes disabled or dies
  • Eligibility to contribute is phased out as AGI rises

Beneficiaries of IRAs - Beneficiaries of IRAs (or qualified plans) are well advised to get expert tax advice before taking action on their inheritance. This is particularly true for spousal beneficiaries who have more tax saving choices and more potential pitfalls than other beneficiaries.

Taxpayers 70½ or older may make tax free distributions from an IRA to charities up to $100,000.

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The CHET Baby Scholars program is a program of CHET, The State of Connecticut's 529, tax advantaged college savings plan. This program provides up to $250 toward a newborn's future college costs. Every baby born in Connecticut, who is less than a year old, and every adopted child, not later than the first anniversary of the adoption, is eligible for a CHET Baby Scholars grant in the amount of $100. Then, if an additional $150 is saved in the account by the time the child is four (in the case of an adoption, by the fourth anniversary of the adoption), the account may be eligible for a second grant of $150.

More information on this is available at www.aboutchet.com.

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Self employed health insurance deductions

After years of being limited to a partial deduction, individuals who are self employed may now deduct 100% of health insurance expenses paid for themselves and their families. Certain requirements apply.

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Establish a retirement plan

  • A corporation with significant profits that already pays its owner-employees well should consider starting a profit-sharing plan. Contributions to the plan would reduce corporate taxes and pass corporate income to participating employees (including the owners) on a tax-favored basis. A profit-sharing plan can have a 401(k) salary deferral feature if desired.

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