Financial Planning | December 11, 2018

2018 Tax Cuts and Jobs Act: What You Need to Know and Do Before Year-End

by  John LeVangie, GW & WADE ADVISOR

At the end of 2017, the Tax Cuts and Jobs Act was signed into law. This law made significant changes to our tax code that changed or eliminated many deductions and changed the landscape of tax planning opportunities. As we near year-end, it is important to understand which planning opportunities changed, which techniques were eliminated, and to discover the new strategies that may be available to you.

Below is a summary of the key changes that most affect taxpayers and some helpful year-end tax planning tips. If you have any questions, we encourage you to contact your GW & Wade Counselor or you can reach us at

1. Revisiting the Major Changes to the Tax Code

  • Lower Tax Rates and New Tax Brackets

  • Changes to Itemized Deductions

  • Modernizing the Alternative Minimum Tax (AMT)

    The AMT was implemented in 1969 as a way to ensure that high-income taxpayers paid a certain level of tax regardless of how many deductions they could claim. However, the income thresholds on which the AMT was based were never indexed for inflation after the last major modification in 1993. As time passed, more taxpayers were subject to the AMT based on the 1993 concept of “high income taxpayer.” Taxpayers relied on annual legislation to minimize the impact of the AMT.

    Under the new law, the income thresholds were raised to 2017 levels and indexed for inflation as a matter of law, and changes were made to the calculation to make sure that only the targeted taxpayers were subject to the AMT. As a result of this change, and changes to itemized deductions discussed above, far fewer taxpayers are subject to the AMT. However, see below for a discussion on Incentive Stock Options, an area where AMT planning is still necessary.

2. Planning Opportunities

  • Tax Loss Harvesting

    One area of the law that was not materially changed in the tax overhaul was the taxation of capital gains and losses. As the bull market that began after the 2008 financial crises approaches a decade, the drastic increase in stock prices have left patient, long-term investors with big gains.

    However, as the market gets more volatile and you revisit your investment allocation, you may begin to reduce your equity exposure. To do so in a non-retirement account, you will likely have to realize long-term gains. In addition, mutual fund investors will likely see capital gains dividend distributions from many of their domestic equity funds as those funds rebalance.

    One reason to help ease the increase in taxes from these gains is to monitor your account for losses. While U.S. equities have seen a drastic rise in the past decade, international equities have not done as well, and recently we have seen losses in many fixed income sectors. Selling some positions in these underperforming sectors may provide you with losses you can use to offset your other realized gains. However, make sure that all tax-motivated sales are consistent with your overall investment plan.
  • Charitable Planning

    As illustrated above, the standard deduction has nearly doubled from prior law. As a result, fewer people will be itemizing their deductions going forward. For taxpayers that regularly make deductible charitable contributions that now find themselves in the standard deduction, it may make sense to “bunch” their deductions. Under this strategy, a taxpayer would make multiple years’ worth of gifts every few years to exceed the standard deduction. Rather than giving directly to charity, you can contribute to a Donor Advised Fund (DAF), which allows you to maintain control over your contributions and disbursements. The money you donate in one year can be held in the DAF and contributions can be spread of over multiple years to the charities of your choosing like you normally would. The only thing you would be accelerating is your potential tax benefits.

    For more information, view our recent Charitable Giving blog.
  • Roth Conversions

    Under the new law, tax rates are lower and tax brackets are wider, meaning that more income is being taxed at lower rates. Converting from a traditional retirement account to a Roth retirement account requires you to pay taxes now on amounts converted to the Roth IRA. In exchange, you and your beneficiaries will not have to pay tax on distributions from this account nor are they subject to the Minimum Distribution rules requiring distributions at age 70 ½.These more favorable tax rates combined with a higher standard deduction may make a Roth Conversion more attractive, especially if you have a modest income year or you believe that tax rates are likely to be much higher when you reach retirement.
  • Incentive Stock Options (ISOs)

    The new tax law provides greater opportunity for holders of ISOs to realize the tax benefits of these awards. Under the previous regime, ISO holders did not have to worry about regular income taxes when they exercised and held ISOs. However, the income realized from exercising and holding ISOs was and is subject to the AMT. This led to many unsuspecting ISO holders to being subject to a higher (sometimes significantly higher) tax bill if they were not properly advised.

    Fortunately, as discussed above, the new tax law significantly reduces the impact of the AMT. This provides much more room for ISO holders to exercise their options without being subject to the AMT. However, the potential AMT exposure still exists, so holders should be careful to analyze their entire tax situation. The decision to exercise and hold ISO shares should be analyzed carefully.

3. Year-End Checklist

  • Required Minimum Distributions

    For all taxpayers over 70 ½, make sure you have taken all required distributions from your retirement accounts. A failure to do so could result in significant penalties.

  • Flexible Spending Accounts (FSA)

    If you contributed to an FSA during the year, and your plan runs on a calendar year, be sure to generate enough expenses by the end of the year so that you spend the entire account. Any money that is contributed but not spend by year-end will be forfeited.

  • Retirement Plan Contributions

    Review and ensure that you are contributing as much as feasible to your retirement plan. For company sponsored 401(k) plans, contributions must be made by 12/31 to qualify as a deduction for 2018.

  • 529 Plans

    Under the new tax law, you are allowed to use up to $10,000 per year from a 529 plan to pay for private K-12 tuition. If you have a 529 plan and paid for private elementary or high school tuition during the year, you may consider using a 529 plan to cover most of that expense. Check with your advisor to determine the specific details of your state’s plan. Not all states automatically follow the federal definition for their 529 laws. 

    For more information, view our recent 529 Plan blog.

  • Qualified Business Income Deduction

    If you are self-employed, a partner in a partnership, or an S-Corp shareholder, you may qualify for the new deduction equal to 20% of the income from these entities. Your allowable deduction is based on your total income from the year, so a complete review of your total tax situation must be reviewed to determine if you can qualify for this deduction.

  • Review Major Life Events

    Almost everything in life involves taxes: if you got married, had a child, bought/sold a home, etc., you should consult with an advisor to consider the tax impact.

Again, if you have any questions, we encourage you to contact your GW & Wade Counselor or you can reach us at We welcome the opportunity to help you achieve your long-term financial goals.

The information above is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change. GW & Wade cannot guarantee that this information is accurate, complete, or timely.  We make no warranties with regard to such information or results obtained by its use. Always consult an attorney or tax professional regarding your specific situation.

Clients of the firm who have specific questions should contact the GW & Wade Counselor with whom they regularly work. All other inquiries, including any inquiry concerning a potential advisory relationship with GW & Wade, should be directed to:

Laurie Wexler Gerber, Client Development Manager
GW & Wade, LLC
T. 781-239-1188

Financial Planning

John LeVangie



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