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Robert Powell: Hi, I'm Bob Powell, editor of Retirement Daily here at The Street. And today I'm talking to Jeffrey Levine who was CEO of Blueprint Wealth Alliance, and also director of advisor education at kitsus.com. And today we're talking about planning tips for year-end. Jeffrey, welcome.

Jeffrey Levine: Thank you so much.

Robert Powell: So, I have to imagine, here we are in September.

Jeffrey Levine: Mm-hmm (affirmative).

Robert Powell: People have enough time to do some year-end planning.

Jeffrey Levine: Sure.

Robert Powell: But they should probably start doing it now.

Jeffrey Levine: Absolutely.

Robert Powell: Okay. What are the top two, three things that people should be doing?

Jeffrey Levine: Well, the very first thing people need to do is look at their tax bill and what they've paid in through this year, as opposed to last year. The IRS has said they've actually-

Robert Powell: They've just put out a notice, actually.

Jeffrey Levine: Yeah. Yeah. They made a couple mistakes here or there on how much should have been withheld and so forth. So, you want to make sure that you're withholding, or the estimated taxes that you've paid in before the end of the year are up to snuff.

Robert Powell: When you go in the IRS, they have a withholding calculator if I'm not mistaken.

Jeffrey Levine: Absolutely, Yep. The IRS has that withholding calculator, hopefully it's right now.

Robert Powell: Yeah.

Jeffrey Levine: And if not, one of the things you can do is talk to your CPA. A lot of CPA's out there, for instance in our practice, what we did was when we did tax returns for our clients, we gave them a projection of what their tax bill would look like under the 2018 rules, if everything had been the same as it was in 2017. So, you can certainly contact your CPA, reach out, look at the IRS website. But check to make sure you've got the right amount of withholding or estimated taxes paid in, so that you don't have estimated tax penalties. And if for whatever reason you find you're short, two ways of really going about fixing it. One is to increase your estimates, the other one is to increase withholdings. And if you have that second option, typically it's the better way to go, because when you pay an estimate, if you, let's say, fix this, if you will on December 31st, the IRS treats it as paying that estimate on December 31st.

But if you go to your employer and you withhold a larger portion of your last paycheck, or if you take a distribution from your individual retirement account, and you will hold the significant portion of that, for instance. Those withholdings are treated as if they were paid in equally throughout the year. So it's a little bit better protection mechanism for estimated tax penalty.

Robert Powell: Okay. Now, the planning tip?

Jeffrey Levine: A lot of people this year think ... I look at a lot of statistics, and depends upon what research you believe and want to trust, but somewhere between 70 maybe 80% of Americans in 2018 will have lower taxes than they did in 2017. Now, if you play that forward right now, and things are always subject to change, but right now at least, that means most Americans, when the current individual tax cuts expire at the end of 2025, will see their tax bill increase. Right? So you have a window here of six, seven years, potentially of lower tax rates, where you may want to take advantage of those by perhaps executing Roth IRA conversions, and accelerating income, and using up those lower tax bracket years. So, that may be something individuals want to look at. The third thing I would say, or a third tip would be to check your itemized deductions versus the new standard deduction. We roughly doubled the standard deduction. We also eliminated personal exemptions, but we did roughly double the standard deduction from last year to this year. And with that doubling, it means many, many, many more people are going to be a filing using the standard deduction. So there are some things that we should be concerned about there, or at least aware of.

The first is, if you're charitably inclined, how are you giving to charity? Are you giving to charity in a tax efficient way? A lot of people, they may not give to charity for the deduction, but they want some tax benefit. Or, if they're going to give, they might as well give it in the most tax efficient way possible. So, three ways in which they might do that this year relative to last are giving significant amounts at the end of the year. Maybe bunching 2018 and 2019 contributions together, so that you get above that higher-

Robert Powell: Meet that threshold.

Jeffrey Levine: Exactly. So $24,000 for married couples this year. $12,000 for single filers. If you find yourself that you normally give let's say $3,000 to charity, and you're a married couple and you have $21,000 of other deductions, well that 3,000 only gets you to 24. You had 24 anyway. So great that you gave to charity. I support that, obviously. But no tax benefit. If you gave your-

Robert Powell: 6,000.

Jeffrey Levine: Yeah, exactly. If you gave 6,000 to charity and covered 18 and 19, that would be a way to do it. And for those that don't want to actually give charity all that money now, but kind of want to lump those deductions together, they may look at something called a donor advice fund for very large donations, hundreds of thousands, institutions will allow you to even manage those accounts yourself. But for those smaller donations in the tens of thousands of dollars, which are still quite substantial, you're going to go typically into a pooled investment. And all the big brokerage houses have donor advise funds that you can kind of slide into. And what it allows you to do is donate today, get the tax deduction up front, but from that donor advise fund, then pay out those funds to the charities each year. So that's one way. Instead of gifting by check, you may want to look at gifting appreciated stock. Even if you don't get the deduction.

Let's say you bought something years ago for $1,000 and now it's worth $10,000. And you give that $10,000 stock away. And let's just say for whatever reason you still are not able to qualify for a deduction, you still don't get above that standard deduction threshold. You can, however, turn around and buy that stock right back. And now you've given away a stock that had $9,000 of gain. You buy it right back. Your basis is $10,000 dollars.

Robert Powell: $10,000, right.

Jeffrey Levine: When you sell it in the future, you're lowering your tax break then. So that's another smart way of giving to charity in an amount, where you already want to. And the final way would be for those of your listeners are seven and a half or older, you're able to give directly from your IRA an amount up to $100,000. It can count towards your required minimum distribution. And the real benefit there is that the income is added to your return. So if you're an individual, let's say again, a married couple, you have $15,000 of deductions, and you have a $5,000 RMD. If you take that RMD, you put it in your bank account, and then write a check to charity, all you're doing is increasing your taxable income by $5,000. Yes, you gave to charity. But you got $24,000 of standard deduction before. And if you take $15,000 of itemized deductions plus another five of charity, you're only at 20. 24 is still higher. You got no tax benefit, but you added $5,000 of income, not a good way to give.

If you gave it to using the QCD, the qualified charitable distribution provision, you would have no $5,000 added to your income, no deductions still, but no $5,000 added. So, those are kind of three things that individuals might want to look at on the charitable planning side prior to the end of the year.

Robert Powell: All right. Those are some great planning tips. On behalf of my colleagues here at The Street, I want to thank Jeffrey Levine for coming on today to talk about planning tips for year-end. I'm Bob Powell, editor of Retirement Daily here at TheStreet.com.

You've got less than two months to make moves to reduce your 2018 tax bill.

In an interview with Robert Powell, editor of TheStreet's Retirement Daily, Jeffrey Levine, CEO and founder of Blueprint Wealth Alliance and director of adviser education at Kitces.com, said there are at least three items to do today.

Check Your Tax Bill

"The very first thing people need to do is look at their tax bill and what they've paid in through this year, as opposed to last year," said Levine. "You want to make sure that you're withholding, or the estimated taxes that you've paid in before the end of the year are up to snuff."

You can do a paycheck checkup using the IRS's Withholding Calculator and, if necessary, complete a new W-4 form. The calculator helps determine the right amount of withholding. According to Tax Reform Tax Tip 2018-143 https://go.usa.gov/xPxs5, the Tax Cuts and Jobs Act (TCJA), enacted in December 2017, changed the way tax is calculated for most taxpayers, including retirees.

In addition to using the IRS's withholding calculator, you might consider talking to a CPA who could review your 2017 tax return and your projected 2018 income.

No matter whether you use the IRS website, a CPA or both, "check to make sure you've got the right amount of withholding or estimated taxes paid in, so that you don't have estimated tax penalties," said Levine."

Underpaying? There's a fix

And, if, for whatever reason you find you're short, there are two ways to fix it. Increase your estimated tax payments and/or increase withholding. "And if you have that second option, typically it's the better way to go," said Levine. The IRS would treat any estimated tax payment made now as being paid December 31.

"But if you go to your employer and you withhold a larger portion of your last paycheck, or if you take a distribution from your individual retirement account, and you will hold the significant portion of that, for instance," he said. "Those withholdings are treated as if they were paid in equally throughout the year. So it's a little bit better protection mechanism for estimated tax penalty."

Itemized Deductions

In addition, Levine recommends checking your itemized deductions versus the new standard deduction.

The Tax Cuts and Jobs Act of 2017 (TCJA) doubled the standard deduction to $12,000 for single taxpayers and $24,000 for those married filing jointly and personal exemptions were eliminated. "And with that doubling, it means many, many, many more people are going to be a filing using the standard deduction," he said. "So, there are some things that we should be concerned about there, or at least aware of."

"Are you giving to charity in a tax efficient way?" Levine asked. "A lot of people, they may not give to charity for the deduction, but they want some tax benefit. Or, if they're going to give, they might as well give it in the most tax efficient way possible."

According to Levine, there are a few of many options to consider:

  • Bunching 2018 and 2019 charitable contributions to get over the itemized deduction threshold.
  • Contribute to a donor-advised fund. "What that allows you to do is donate today, get the tax deduction up front, but from that donor-advised fund, then pay out those funds to the charities each year," he said.
  • Instead of gifting by check, gifting appreciated stock even if you don't get the deduction.

Got questions about money, retirement and/or investments? Email Retirement Daily's Robert.Powell@TheStreet.com