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  • Carol

Tax Update

Originally Published 2019-08-25

Late summer is a wonderful time to start talking about some tax planning strategies. Some of these may help cut your tax bill for the current year while others will allow you to minimize future taxes. All taxpayers were affected by the Tax Cuts and Jobs Act (TCJA) that went into effect January of 2018 and these ideas will factor in those changes.

Estate Planning—and Gifting

Starting in 2018, the unified federal estate and gift tax exemption doubled for individuals from $5 million to $10 million, indexed for inflation annually. For 2019, the inflation adjusted exemption is $11.4 million or $22.8 million for a married couple. These exemptions are scheduled to expire after 2025 and revert to the prior 2018 level of $5 million, unless Congress takes further action.

You might say that due to the high exemptions, your estate would not be affected; however, your estate plan may still need updating to reflect the current tax rules. Without an update, you may find that the outcome should you die may not be as you intended due to language that was used in your documents prior to the rate changes.

The current federal estate tax rate is 40%, but a few years ago it was 55%. In essence, therefore, it might be a good time to make some large gifts, under today’s favorable tax rules. In 2018, IRS regulations proposed stipulated that individuals who make large gifts in 2018 through 2025 and benefit from the historically low unified federal estate and gift tax exemptions for those years will not be penalized if the exemptions revert to the pre-TCJA amounts after 2025. (These regulations, however, have not yet been finalized).

This is a great time, too, to take a look at your taxable investment accounts. Do they include some highly appreciated securities that could be gifted rather than sold? Instead of making cash gifts, give gifts of appreciated stock to some of your favorite charities. Donations of investments that you’ve owned over a year result in charitable deductions equal to the full current market value of the shares at the time of the gift (this assumes that you itemize rather than taking the standard deduction).

When you donate appreciated shares, you first of all avoid capital gains taxes. Secondly, if you itemize deductions, you get a tax-savings charitable deduction. And, the tax exempt organization can sell the donated shares without owing anything to the IRS. A win-win for both parties.

This strategy also works well by gifting appreciated stock to family members. You avoid the taxes by making the gift. However, the recipients, or donees, will have your cost basis and therefore may have to recognize the gain on their subsequent sale. If, however, they are at a lower tax rate then you it can still be very advantageous to both parties.


-The annual federal gift tax exclusion for 2019 is $15,000. Therefore, you can give up to $15,000 a year to as many individuals as you wish and have no tax consequences for you or the individuals you are gifting to. No tax returns are needed.

-In Washington State, the 2019 estate and transfer tax exemption is $2,193,000.

For Your Tax Consideration--

Consider a Roth conversion….This strategy makes sense if you expect that, during your retirement years, you’ll be in your current tax bracket or a higher one. The current tax cost of converting now may turn out to be a relatively small price to pay for completely avoiding potentially higher future tax rates on the account’s earnings.

Alternative Minimum Tax…The TCJA reduced the odds that you’ll owe AMT for 2018 through 2025. For those years the law increased the AMT exemption amounts and the income levels at which those exemptions are phased out. If you owe AMT, you’ll probably owe much less than prior years.

529 College Savings Plans…The basic rule for a 529 plan is that there will be no taxes owed on investment earnings while those dollars are in the plan, or when they are distributed, as long as they’re used for qualified education expenses. This includes tuition, textbooks and supplies. Room and board that are part of an official college or university housing program also qualify.

Please let me know if you have any questions. I hope you all are having a wonderful summer!!!

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